e10vk

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

The aggregate market value of the Common Stock of the registrant held by non-affiliates as of June 30, 2003 was $659,857,000. For purposes of this disclosure, common stock held by persons who hold more than 5% of the outstanding voting shares and common stock held by executive officers and directors of the registrant have been excluded in that such persons may be deemed to be “affiliates” as that term is defined under the rules and regulations promulgated under the Securities Act of 1933. This determination of affiliate status is not necessarily a conclusive determination for other purposes. With respect to persons holding more that 5% of our outstanding voting shares and common stock, we have relied upon statement filed by such persons on or prior to June 30, 2003 pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended.

Number of shares of the Common Stock of the registrant outstanding as of March 19, 2004: 85,536,605 shares.

Portions of the Registrant’s definitive proxy statement for the 2004 Annual Meeting of Stockholders to be held in 2004, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2003, are incorporated by reference into Part III.

Certain matters discussed in this Annual Report on Form 10-K are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe”, “anticipate”, “expect”, “estimate” or words of similar import. Similarly, statements that describe the Company’s future plans, objectives or goals or future revenues or other financial metrics are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those anticipated as of the date of this report. These risks and uncertainties include:


	•	our inability to renew our short-term leases of equipment with our customers so as to fully recoup our cost of the equipment;

	•	a prolonged substantial reduction in oil and natural gas prices, which could cause a decline in the demand for our compression and oil and natural gas production equipment;

	•	reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

	•	legislative changes or changes in economic or political conditions in the countries in which we do business;

	•	the inherent risks associated with our operations, such as equipment defects, malfunctions and failures and natural disasters;

	•	our inability to implement certain business objectives, such as:


	•	integrating acquired businesses,

	•	implementing our new enterprise resource planning systems,

	•	generating sufficient cash,

	•	accessing capital markets,

	•	refinancing existing or incurring additional indebtedness to fund our business, and

	•	executing our exit and sale strategy with respect to assets classified on our balance sheet as discontinued operations and held for sale;


	•	governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; and

	•	our inability to comply with covenants in our debt agreements and the decreased financial flexibility associated with our substantial debt.

Other factors in addition to those described in this Form 10-K could also affect our actual results. You should carefully consider the risks and uncertainties described above and those discussed in Item 1 “Business” and in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Affect Our Financial Condition and Future Results,” of this Form 10-K in evaluating our forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this Form 10-K. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Form 10-K or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time to time with the SEC after the date of this Form 10-K. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

Hanover Compressor Company, (“we”, “Hanover”, or the “Company”) a Delaware corporation, together with its subsidiaries, is a global market leader in the full service natural gas compression business and is also a leading provider of service, fabrication and equipment for oil and natural gas processing and transportation applications. We sell and rent this equipment and provide complete operation and maintenance services, including run-time guarantees, for both customer-owned equipment and our fleet of rental equipment. Hanover was founded as a Delaware corporation in 1990, and has been a public company since 1997. Our customers include both major and independent oil and gas producers and distributors as well as national oil and gas companies in the countries in which we operate. Our maintenance business, together with our parts and service business, provides solutions to customers that own their own compression and surface production and processing equipment, but want to outsource their operations. We also fabricate compressor and oil and gas production and processing equipment and provide gas processing and treating, gas measurement and oilfield power generation services, primarily to our domestic and international customers as a complement to our compression services. In addition, through our subsidiary, Belleli Energy S.r.l. (“Belleli”), we provide engineering, procurement and construction services primarily related to the manufacturing of heavy wall reactors for refineries and construction of desalination plants, primarily for use in Europe and the Middle East.

Substantially all of our assets and operations are owned or conducted by our wholly-owned subsidiary, Hanover Compression Limited Partnership (“HCLP”). In December 2001 and 2002, HCLP and its subsidiaries completed various internal restructuring transactions pursuant to which certain of the domestic subsidiaries of HCLP were merged, directly or indirectly, with and into HCLP.

We believe that we are currently the largest natural gas compression company in the United States on the basis of aggregate rental horsepower, with approximately 6,071 rental units in the United States having an aggregate capacity of approximately 2,588,000 horsepower at December 31, 2003. In addition, we estimate that we are one of the largest providers of compression services in the Latin American and Canadian markets, operating approximately 835 units internationally with approximately 925,000 horsepower at December 31, 2003. As of December 31, 2003, approximately 74% of our natural gas compression horsepower was located in the United States and approximately 26% was located elsewhere, primarily in Latin America and Canada.

Our products and services are essential to the production, processing, transportation and storage of natural gas and are provided primarily to energy producers and distributors of oil and natural gas. Our decentralized operating structure, technically experienced personnel and high-quality compressor fleet have allowed us to successfully provide reliable and timely customer service.

We compete primarily in the market for transportable natural gas compression units of up to 4,500 horsepower. The market for rental compression has experienced significant growth over the past decade. Although recently we have not experienced any significant growth in domestic rentals or purchases of equipment and services by our customers, which we believe is primarily a result of the lack of a significant increase in U.S. natural gas production levels, we believe that the U.S. gas compression market will continue to grow due to the increased demand for natural gas, the continued aging of the natural gas reserve base and the attendant decline of wellhead pressures, the discovery of new reserves and the continuing interest in outsourcing compression by independent producers. However, because the majority of oil and gas reserves are located outside of the United States, we believe that international markets will be a primary source of our growth opportunities in the gas compression market in the years to come.

As of December 31, 2003, the rental portion of the domestic gas compression market was estimated by industry sources to be approximately 5.0 million horsepower, which we estimate accounts for approximately 30% of aggregate U.S. horsepower, having doubled since 1996. Growth of the rental

compression capacity in the U.S. market has been primarily driven by the trend toward outsourcing by energy producers and processors. We believe that outsourcing provides the customer greater financial and operating flexibility by minimizing the customer’s investment in equipment and enabling the customer to more efficiently resize their compression capabilities to meet changing reservoir conditions. In addition, we believe that outsourcing typically provides the customer with more timely and technically proficient service and maintenance, which often reduces operating costs. We believe growth opportunities for compressor rental and sales exist due to (1) increased worldwide energy consumption, (2) implementation of international environmental and conservation laws prohibiting the flaring of natural gas, which increases the need for gathering systems, (3) increased outsourcing by energy producers and processors, (4) the environmental soundness, economy and availability of natural gas as an alternative energy source and (5) continued aging of the worldwide natural gas reserve base and the attendant decline of wellhead pressures. The rental compression business is capital intensive, and our ability to take advantage of these growth opportunities may be limited by our ability to raise capital to fund our expansion. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Item 7 of this Form 10-K.

Securities Class Actions. On October 23, 2003, we entered into a Stipulation of Settlement, which settled all of the claims underlying the putative securities class action, the putative ERISA class action and the shareholder derivative actions which were filed against the Company and are more fully described in Item 3 “Legal Proceedings” in this Form 10-K. The terms of the settlement provide for us to: (1) make a cash payment of approximately $30 million (of which $26.7 million was funded by payments from Hanover’s directors and officers insurance carriers), (2) issue 2.5 million shares of our common stock, and (3) issue a contingent note with a principal amount of $6.7 million. The note is payable, together with accrued interest, on March 31, 2007 but will be extinguished (with no money owing under it) if our common stock trades at or above the average price of $12.25 per share for 15 consecutive trading days at any time between March 31, 2004 and March 31, 2007. In addition, upon the occurrence of a change of control that involves us, if the change of control or shareholder approval of the change of control occurs before February 9, 2005, which is twelve months after final court approval of the settlement, we will be obligated to contribute an additional $3 million to the settlement fund.

As part of the settlement, we have also agreed to implement corporate governance enhancements, including allowing shareholders owning more than 1% but less than 10% of our outstanding common stock to participate in the process to appoint two independent directors to our board of directors (pursuant to which on February 4, 2004 we appointed Margaret K. Dorman and Stephen M. Pazuk to our board of directors) and making certain changes to our code of conduct.

GKH Investments, L.P. and GKH Private Limited (collectively “GKH”), which, as of December 31, 2003, together owned approximately 10% of our outstanding common stock and which sold shares in our March 2001 secondary offering of common stock, are parties to the settlement and have agreed to settle claims against them that arise out of that offering as well as other potential securities, ERISA, and derivative claims. The terms of the settlement provide for GKH to transfer 2.5 million shares of our common stock from their holdings or from other sources to the settlement fund.

We received a letter on March 11, 2004 from the administrative trustee of the GKH Liquidating Trust indicating it and one of its affiliates had decided to distribute 5.8 million shares of the 8.3 million shares of Hanover common stock owned by the GKH Liquidating Trust (formerly held by GKH) and its affiliate to the relevant beneficiaries. The remaining 2.5 million shares held by GKH will be paid as part of the global shareholder litigation settlement.

Judgment approving the schedule of attorneys’ fees for counsel for the settling plaintiffs. The time in which these Orders and Final Judgments may be appealed expired on March 10, 2004 without any appeal being lodged. The settlement has therefore become final and will be implemented according to its terms. Our independent auditor, PricewaterhouseCoopers LLP, is not a party to the settlement and remains a party to the securities class action. (See Item 3 “Legal Proceedings” and Item 7 “Managements Discussion and Analysis of Financial Condition and Results of Operations — Year ended December 31, 2003 compared to year ended December 31, 2002 — Provision for securities litigation settlement.”)

SEC Settlement. In December 2003, we entered into a settlement with the Securities and Exchange Commission (“SEC”), concluding the previously disclosed SEC investigation into the transactions underlying, and other matters relating to, the restatement of our financial statements for fiscal years 1999, 2000 and 2001. Without admitting or denying any of the SEC’s findings, we consented to the entry of a cease and desist order requiring future compliance with certain periodic reporting, record keeping and internal control provisions of the securities laws. The settlement did not impose any monetary penalty on us and required no additional restatements of our historical financial statements.

Debt Refinancings. In December 2003, we issued under our shelf registration statement $200.0 million aggregate principal amount of our 8.625% Senior Notes due 2010, which are fully and unconditionally guaranteed on a senior subordinated basis by HCLP. The net proceeds from this offering were used to repay the outstanding indebtedness and minority interest obligations of $194.0 million and $6.0 million, respectively, under our 1999A equipment lease that was to expire in June 2004.

Also in December 2003, we issued under our shelf registration statement $143.8 million aggregate principal amount of our 4.75% Convertible Senior Notes due 2014. We may redeem these convertible notes beginning in 2011 under certain circumstances. The convertible notes are convertible into shares of our common stock at an initial conversion rate of 66.6667 shares of our common stock per $1,000 principal amount of the convertible notes (subject to adjustment in certain events) at any time prior to the stated maturity of the convertible notes or the redemption or repurchase of the convertible notes by us. The net proceeds from this offering were used to repay a portion of the outstanding indebtedness under our bank credit facility.

New Bank Credit Facility. Effective December 15, 2003, we entered into a new $350 million bank credit facility having a maturity date of December 29, 2006 and made conforming amendments related to the compression equipment lease obligations that we entered into in 2000. Our prior $350 million bank credit facility that was scheduled to mature in November 2004, was terminated upon closing of the new facility. The new bank credit facility modified certain covenants that were contained in the prior facility and eliminated certain covenants entirely. The new agreement prohibits us (without the lenders’ prior approval) from declaring or paying any dividend (other than dividends payable solely in our common stock or in options, warrants or rights to purchase such common stock) on, or making similar payments with respect to, our capital stock. The new agreement clarifies and provides certain thresholds with respect to our ability to make investments in our foreign subsidiaries. In addition, under the new agreement, we granted the lenders a security interest in the inventory, equipment and certain other property of Hanover and its domestic subsidiaries (with certain exceptions), and pledged 66% of the equity interest in certain of our foreign subsidiaries. We believe that this new bank credit facility will provide flexibility in accessing the capacity under the facility to support our short-term liquidity needs.

Panoche/ Gates Dispositions. In May 2003, we announced that we had agreed to sell our 49% membership interest in Wellhead Power Panoche, LLC (“Panoche”) and our 92.5% membership interest in Wellhead Power Gates, LLC (“Gates”) to Hal Dittmer and Fresno Power Investors Limited Partnership, who owned the remaining interests in Panoche and Gates. Panoche and Gates own gas-fired peaking power plants of 49 megawatts and 46 megawatts, respectively. The Panoche transaction closed in June 2003 and the Gates transaction closed in September 2003. Total consideration for the transactions was approximately $27.2 million consisting of approximately $6.4 million in cash, $2.8 million in notes that mature in May 2004, a $0.5 million note that matures in September 2005 and the release of our obligations under a capital lease from GE Capital to Gates that had an outstanding balance of

PIGAP II Restructuring and Our Zero Coupon Subordinated Notes due March 31, 2007. On May 14, 2003, we entered into an agreement with Schlumberger Limited to terminate our right to put our interest in the PIGAP II joint venture to Schlumberger. As a result, we retained our interest in PIGAP II. We had previously given notice of our intent to exercise the PIGAP put in January 2003. PIGAP II is a joint venture, currently owned 70% by a subsidiary of Williams Companies Inc. and 30% by Hanover, which operates a natural gas compression facility in Venezuela. The natural gas processed by PIGAP II is re-injected into oil reservoirs for enhanced oil recovery.

Also on May 14, 2003, we agreed with Schlumberger Surenco, an affiliate of Schlumberger, to the modification of the repayment terms of a $58.0 million obligation that was accrued as a contingent liability on our balance sheet since the acquisition of Production Operators Corporation (“POC”) and was associated with the PIGAP II joint venture. The obligation was converted into a non-recourse promissory note (the “PIGAP Note”) payable by Hanover Cayman Limited, our indirect wholly-owned consolidated subsidiary, with a 6% interest rate compounding semi-annually until maturity in December 2053. In October 2003, the PIGAP II joint venture closed on the project’s financing and distributed approximately $78.5 million to Hanover, of which approximately $59.9 million was used to repay the PIGAP Note.

In connection with the agreement to terminate our right to put our interest in PIGAP II back to Schlumberger, we also agreed with Schlumberger to restructure the $150 million subordinated note that Schlumberger received from Hanover in August 2001 as part of the purchase price for our acquisition of POC’s natural gas compression business, ownership interest in certain joint venture projects in South America (including PIGAP II), and related assets. As of March 31, 2003, the date from which the interest rate was adjusted, the $150 million subordinated note had an outstanding principal balance of approximately $171 million, including accrued interest. We restructured the $150 million subordinated note as our Zero Coupon Subordinated Notes due March 31, 2007, which notes were issued to Schlumberger and were sold by Schlumberger in a registered public offering in December 2003. Original issue discount accretes under the zero coupon notes at a rate of 11.0% per annum for their remaining life, up to a total principal amount of $262.6 million payable at maturity. The notes will accrue additional interest at a rate of 2.0% per annum upon the occurrence and during the continuance of an event of default under the notes. The notes will also accrue additional interest at a rate of 3.0% per annum if our consolidated leverage ratio, as defined in the indenture governing the notes, exceeds 5.18 to 1.0 as of the end of any two consecutive fiscal quarters. Notwithstanding the preceding, in no event will the total additional interest accruing on the notes exceed 3.0% per annum if both of the previously mentioned circumstances occur. The notes also contain a covenant that limits our ability to incur additional indebtedness if our consolidated leverage ratio exceeds 5.6 to 1.0, subject to certain exceptions.

Belleli Acquisition. In 2002, we increased our ownership of Belleli to 51% from 20.3% by converting $13.4 million in loans, together with approximately $3.2 million in accrued interest thereon, into additional equity ownership and in November 2002 began consolidating the results of Belleli’s operations. Belleli has three manufacturing facilities, one in Mantova, Italy and two in the United Arab Emirates (Jebel Ali and Hamriyah). During 2002, we also purchased certain operating assets used by Belleli for approximately $22.4 million from a bankruptcy estate of Belleli’s former parent and leased these assets to Belleli for approximately $1.2 million per year, for a term of seven years.

In connection with our increase in ownership in 2002, we entered into an agreement with the minority owner of Belleli that provided the minority owner the right, until June 30, 2003, to purchase our interest for an amount that approximated our investment in Belleli. The agreement also provided us with the right, beginning in July 2003, to purchase the minority owner’s interest in Belleli. In addition, the minority owner historically had been unwilling to provide its proportionate share of capital to Belleli. We believed that our ability to maximize value would be enhanced if we were able to exert greater control through the exercise of our purchase right. Thus, in August 2003, we exercised our option to acquire the remaining 49% interest

in Belleli for approximately $15.0 million in order to gain complete control of Belleli. As a result of these transactions and intervening foreign exchange rate changes, we recorded $4.8 million in identifiable intangible assets, with a weighted average life of approximately 17 years, and $35.5 million in goodwill.

As a result of the war in Iraq, the strengthening of the Euro and generally unfavorable economic conditions, we believe that the estimated fair value of Belleli declined significantly during 2003. Upon gaining complete control of Belleli and assessing our long-term growth strategy, we determined that these general factors in combination with the specific economic factors impacting Belleli had significantly and adversely impacted the timing and amount of the future cash flows that we expected Belleli to generate. We currently do not expect to realize our original growth expectations for Belleli in the timeframe that we originally forecasted.

During the performance of our annual goodwill impairment review in the fourth quarter of 2003, we determined the present value of Belleli’s expected future cash flows was less than our carrying value of Belleli. This resulted in a full impairment charge for the $35.5 million in goodwill associated with Belleli. Upon further analysis, it was determined that the factors resulting in the goodwill impairment charge were also present during the third quarter of 2003 and that the exercise of our purchase option in the third quarter of 2003 and the presence of such factors should have resulted in an interim goodwill impairment test under SFAS 142 and an impairment charge at that time. We have adjusted our third quarter results accordingly.

Typically, compression is required at several intervals of the natural gas production cycle: at the wellhead, at the gathering lines, into and out of gas processing facilities, into and out of storage and throughout the transportation systems.

Over the life of an oil or gas well, natural reservoir pressure and deliverability typically decline 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 flows naturally into the pipeline. It is at this time that compression equipment is applied to economically boost the well’s production levels and allow gas to be brought to market.

In addition to such wellhead and gas field gathering activities, natural gas compressors are used in a number of other applications, most of which are intended to enhance the productivity of oil and gas wells, gas transportation lines and processing plants. Compressors are used to increase the efficiency of a low capacity gas field by providing a central compression point from which the gas can be removed and injected into a pipeline for transmission to facilities for further processing. As gas is transported through a pipeline, compression equipment is applied to allow the gas to continue to flow in the pipeline to its destination. Additionally, compressors are used to re-inject associated gas to lift liquid hydrocarbons and thereby increase the rate of crude oil production from oil and gas wells. Furthermore, compression enables gas to be stored in underground storage reservoirs for subsequent extraction during periods of peak demand. Finally, compressors are often used in combination with oil and gas production equipment to process and refine oil and gas into higher value added and more marketable energy sources, as well as used in connection with compressed natural gas vehicle fueling facilities providing an alternative to gasoline.

Changing well and pipeline pressures and conditions over the life of a well often require producers to reconfigure or change their compressor units to optimize the well production or pipeline efficiency. Due to the technical nature of the equipment, a dedicated local parts inventory, a diversified fleet of natural gas compressors and a highly trained staff of field service personnel are necessary to perform such functions in the most economic manner. These requirements, however, have typically proven to be an extremely inefficient use of capital and manpower for independent natural gas producers and have caused producers,

The advent of rental and contract compression roughly 40 years ago made it possible for natural gas producers, transporters and processors to improve the efficiency and financial performance of their operations. We believe compressors leased from specialists generally have a higher rate of mechanical reliability and typically generate greater productivity than those owned by oil and gas operators. Furthermore, because compression needs of a well change over time, outsourcing of compression equipment enables an oil and gas producer to better match variable compression requirements to the production needs throughout the life of the well. Also, certain major domestic oil companies are seeking to streamline their operations and reduce their capital expenditures and other costs. To this end, they have sold certain domestic energy reserves to independent energy producers and are outsourcing facets of their operations. We believe that such initiatives are likely to contribute to increased rentals of compression equipment.

Natural gas compressor fabrication involves the design, fabrication and sale of compressors to meet the unique specifications dictated by the well pressure, production characteristics and the particular applications for which compression is sought. Compressor fabrication is essentially an assembly operation in which an engine, compressor, control panel, cooler and necessary piping are attached to a frame called a “skid.” A fabricator typically purchases the various compressor components from third-party manufacturers, but employs its own engineers and design and labor force.

In order to meet customers’ needs, gas compressor fabricators typically offer a variety of services to their customers, including:


	•	engineering, fabrication and assembly of the compressor unit;

	•	installation and testing of the unit;

	•	ongoing performance review to assess the need for a change in compression; and

	•	periodic maintenance and replacement parts supply.

Crude oil and natural gas are generally not marketable as produced at the wellhead and must be processed before they can be transported to market. Production and processing equipment is used to separate and treat oil and gas as it is produced to achieve a marketable quality of product. Production processing typically involves the separation of oil and gas and the removal of contaminants. The end result is “pipeline,” or “sales” quality oil and gas. Further processing or refining is almost always required before oil or gas is suitable for use as fuel or feedstock for petrochemical production. Production processing normally takes place in the “upstream” market, while refining and petrochemical production is referred to as the “downstream” market.

Wellhead or upstream production and processing equipment includes a wide and diverse range of products. We sell “standard” production equipment primarily into U.S. markets, which is used for processing wellhead production from onshore or shallow-water offshore platform production. In addition, we sell custom-engineered, built-to-specification production and processing equipment, which typically consists of much larger equipment packages than standard equipment, and is generally used in much larger scale production operations. These large projects tend to be in remote areas, such as deepwater offshore sites, and in developing countries with limited oil and gas industry infrastructure.

The standard production equipment market tends to be somewhat commoditized, with sales following general industry trends. Equipment can be built for inventory based on historical product mix and predicted industry activity. The custom equipment market is driven by global economic and political trends, and the type of equipment that is purchased can vary significantly. Technology, engineering capabilities, project management and quality control standards are the key drivers in the custom equipment market.

In addition, through our ownership of Belleli, we provide engineering, procurement and construction services primarily related to the manufacturing of heavy wall reactors for refineries and construction of desalination plants, primarily for use in Europe and the Middle East.

We believe that the most fundamental force driving the demand for gas compression and production equipment is the growing global consumption of natural gas. As more gas is consumed, the demand for compression and production equipment increases. In addition, we expect the demand for liquefied natural gas, compressed natural gas and liquefied petroleum gas to continue to increase and result in additional demand for our compression and production equipment and related services.

Although natural gas has historically been a more significant source of energy in the United States than in the rest of the world, we believe that aggregate foreign natural gas consumption has recently grown. Despite this growth in energy demand, most non-U.S. energy markets have historically lacked the infrastructure necessary to transport natural gas to local markets and natural gas historically has been flared at the wellhead. Given recent environmental legislation and the construction of numerous natural gas-fueled power plants built to meet international energy demand, we believe that international compression markets are experiencing growth.

We believe that natural gas is considered to be the “fuel of the future” because it provides the best mix of environmental soundness, economy and availability of any energy source. Rising worldwide energy demand, environmental considerations, the further development of the natural gas pipeline infrastructure and the increasing use of natural gas as a fuel source in oilfield power generation are the principal reasons for this growth.

While gas compression and production and processing equipment typically must be engineered to high specifications to meet demanding and unique customer specifications, the fundamental technology of such equipment has been stable and has not been subject to significant technological change.


	•	Domestic rentals. Our domestic rentals segment primarily provides natural gas compression and production and processing equipment rental and maintenance services to meet specific customer requirements on Hanover-owned assets located within the United States.

	•	International rentals. Our international rentals segment provides substantially the same services as our domestic rentals segment except it services locations outside the United States.

	•	Compressor and accessory fabrication. Our compressor and accessory fabrication segment involves the design, fabrication and sale of natural gas compression units and accessories to meet unique customer specifications.

	•	Production and processing equipment fabrication. Our production and processing equipment fabrication segment includes the design, fabrication and sale of equipment used in the production and treating of crude oil and natural gas; and the engineering, procurement and manufacturing of heavy wall reactors for refineries and the construction of desalination plants.

	•	Parts, service and used equipment. Our parts, service and used equipment segment provides a full range of services to support the surface production needs of customers, from installation and normal maintenance and services to full operation of a customer’s owned assets and surface equipment as well as sales of used equipment.

The domestic and international compression rentals segments have operations primarily in the United States, Canada and South America. For financial data relating to our business segments and financial data relating to the amount or percentage of revenue contributed by any class of similar products or services

which accounted for 10% or more of consolidated revenue in any of the last three fiscal years, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K and Note 23 to the Notes to Consolidated Financial Statements in Item 15 of this Form 10-K.

Compression Rentals, Maintenance Services and Compressor and Accessory Fabrication

We provide our customers with a full range of compressor and associated equipment sales, rental, maintenance and contract compression services. As of December 31, 2003, our compressor fleet consisted of approximately 6,906 units, ranging from 8 to 4,450 horsepower per unit. The size, type and geographic diversity of this rental fleet enable us to provide our customers with a range of compression units that can serve a wide variety of applications and to select the correct equipment for the job, rather than trying to “fit” the job to our fleet of equipment.

We base our gas compressor rental rates on several factors, including the cost and size of the equipment, the type and complexity of service desired by the customer, the length of the contract and the inclusion of any other desired services, such as installation, transportation and the degree of daily operation. In early 2003, we began to selectively introduce price increases for our domestic compression rental business. Such price increases, along with a slight improvement in market conditions, resulted in a 3% increase in revenue from our domestic rentals business in the six months ended December 31, 2003 as compared to the six months ended December 31, 2002. Substantially all of our units are operated pursuant to “contract compression” or “rental with full maintenance” agreements under which we perform all maintenance and repairs on such units while under contract. In the U.S. onshore market, compression rental fleet units are generally leased under contract with minimum terms of six months to two years, which convert to month-to-month at the end of the stipulated minimum period. Historically, the majority of our customers have extended the length of their contracts, on a month-to-month basis, well beyond the initial term. Typically, our compression rental units used in offshore and international applications carry substantially longer lease terms than those for onshore domestic applications.

An essential element of our success is our ability to provide compression services to customers with contractually committed compressor run-times of between 95% and 98%. Historically, our incidence of failing to meet run-time commitments (the penalty for which is paid in credits to the customer’s account) has been insignificant, due largely to our rigorous preventive maintenance program and extensive field service network that permits us to promptly address maintenance requirements. Our team of experienced maintenance personnel performs our rental compression maintenance services both at our facilities and in the field. Such maintenance facilities are situated in close proximity to actual rental fleet deployment to permit superior service response times.

All rental fleet units are serviced at manufacturers’ recommended maintenance intervals, modified as required by the peculiar characteristics of each job and the actual operating experience of each compressor unit. Prior to the conclusion of any rental job, our field management evaluates the condition of the equipment and, where practical, corrects any problems before the equipment is shipped out from the job site. Although natural gas compressors generally do not suffer significant technological obsolescence, they do require routine maintenance and periodic refurbishing to prolong their useful life. Routine maintenance includes alignment, compression checks and other parametric checks that indicate a change in the condition of the equipment. In addition, oil and wear-particle analysis is performed on all units on an ongoing scheduled basis and prior to their redeployment at specific compression rental jobs. Overhauls are done on a condition-based interval instead of a time-based schedule. In our experience, these rigorous procedures maximize component life and unit availability and minimize avoidable downtime. Typically, we overhaul each rental compressor unit for general refurbishment every 36 to 48 months and anticipate performing a comprehensive overhaul of each rental compressor unit every 60 to 72 months. This maintenance program has provided us with a highly reliable fleet of compressors in excellent condition.

Our field service mechanics provide all operating and maintenance services for our compression units leased on a contract compression or full maintenance basis and are on-call 24 hours a day. Those field

personnel receive regular mechanical and safety training both from our staff and our vendors. Each of our field mechanics is responsible for specific compressor unit installations and has at his or her disposal a dedicated local parts inventory. Additionally, each field mechanic operates from a fully equipped service vehicle. Each mechanic’s field service vehicle is equipped with a radio or cellular telephone, which allows that individual to be our primary contact with the customer’s field operations staff and to be contacted at either his or her residence or mobile phone 24 hours a day. Accordingly, our field service mechanics are given the responsibility to promptly respond to customer service needs as they arise based on the mechanic’s trained judgment and field expertise.

We believe our competitive position has benefited from the managerial parity that our sales and field service organizations enjoy within the company, enabling these two vital organizations to work together in a highly coordinated fashion in order to deliver maximum customer service, responsiveness and reliability. The foundation for our successful field operations effort is the experience and responsiveness of our compressor rental field service and shop staff of compressor mechanics. Our field service mechanics are coordinated and supported by regional operations managers who have supervisory responsibility for specific geographic areas.

Our compressor and accessory fabrication operations design, engineer and assemble compression units and accessories for sale to third parties as well as for placement in our compressor rental fleet. As of December 31, 2003, we had a compressor unit fabrication backlog for sale to third parties of $28.2 million compared to $29.8 million at December 31, 2002. Substantially all of our compressor and accessory fabrication backlog is expected to be produced within a three-month to six-month period. In general, units to be sold to third parties are assembled according to each customer’s specifications and sold on a turnkey basis. We acquire major components for these compressor units from third-party suppliers.

The size and horsepower of our compressor rental fleet owned or operated under lease on December 31, 2003 is summarized in the following table.

Through our production and processing equipment fabrication division, we design, engineer, fabricate, sell and rent a broad range of oil and gas production equipment designed to heat, separate, dehydrate and measure crude oil and natural gas. Our product line includes line heaters, oil and gas separators, glycol dehydration units and skid-mounted production packages designed for both onshore and offshore production facilities. We also purchase and recondition used production and processing equipment that is then sold or rented and generally maintain standard product inventories to meet most customers’ rapid response requirements and minimize customer downtime. As of December 31, 2003, we had a production and processing equipment fabrication backlog of $18.1 million (excluding Belleli’s backlog of $106.7 million at December 31, 2003) compared to $56.0 million at December 31, 2002. Substantially all of our production equipment backlog is expected to be produced within a three to thirty-six month period. In addition, through our subsidiary, Belleli, we provide engineering, procurement and construction services

We purchase and recondition used gas compression units, oilfield power generation and treating facilities and production equipment that is then sold or rented to customers. In addition, we often provide contract operations and related services for customers that prefer to own their production, gas treating and oilfield power generation or compression equipment. We believe that we are particularly well qualified to provide these services because our highly experienced operating personnel have access to the full range of our compression rental, production processing equipment and oilfield power generation equipment and facilities. As customers look to us to provide an ever-widening array of outsourced services, we will continue to build our core business with emerging business opportunities, such as turnkey gas treatment, gas measurement and oilfield-related power generation sales and services. We maintain parts inventories for our own use and to meet our customers’ needs. As of December 31, 2003, we had approximately $114.1 million in parts and supplies inventories.

Our fabrication operations consist of fabricating compressor and production and processing equipment from components and subassemblies, most of which we acquire from a wide range of vendors. These components represent a significant portion of the cost of our compressor and production and processing equipment products. Although our products are generally shipped within 180 days following their order date, increases in raw material costs cannot always be offset by increases in our products’ sales prices. We believe that all materials and components are readily available from multiple suppliers at competitive prices.

Our global customer base consists of U.S. and international companies engaged in all aspects of the oil and gas industry, including major integrated oil and gas companies, national oil and gas companies, large and small independent producers and natural gas processors, gatherers and pipelines. Additionally, we have negotiated strategic alliances or preferred vendor relationships with key customers pursuant to which we receive preferential consideration in customer compressor and oil and gas production equipment procurement decisions in exchange for providing enhanced product availability, product support, automated procurement practices and limited pricing concessions. No individual customer accounted for more than 10% of our consolidated revenues during 2003, 2002 or 2001.

Our compressor leasing activities are located throughout the continental United States, internationally and in offshore operations. International locations include Argentina, Barbados, Egypt, United Arab Emirates, Equatorial Guinea, India, Venezuela, Colombia, Trinidad, Bolivia, Brazil, Mexico, Peru, Pakistan, Indonesia, Nigeria, United Kingdom, Russia and Canada. In addition, we have representative offices in the Netherlands and the Cayman Islands. As of December 31, 2003, equipment representing approximately 26% of our compressor rental fleet horsepower was being used in international applications.

Our salespeople pursue the rental and sales market for compressors and production equipment and other products in their respective territories. Each salesperson is assigned a customer list on the basis of the experience and personal relationships of the salesperson and the individual service requirements of the customer. This customer and relationship-focused strategy is communicated through frequent direct contact, technical presentations, print literature, print advertising and direct mail. Our advertising and promotion strategy is a concentrated approach, tailoring specific messages into a very focused presentation methodology.

Additionally, our salespeople coordinate with each other to effectively pursue customers who operate in multiple regions. The salespeople maintain contact with our operations personnel in order to promptly respond to and satisfy customer needs. Our sales efforts concentrate on demonstrating our commitment to enhancing the customer’s cash flow through superior product design, fabrication, installation, customer service and after-market support.

Upon receipt of a request for proposal or bid by a customer, we assign a team of sales, operations and engineering personnel to analyze the application and prepare a quotation, including selection of the equipment, pricing and delivery date. The quotation is then delivered to the customer and, if we are selected as the vendor, final terms are agreed upon and a contract or purchase order is executed. Our engineering and operations personnel also often provide assistance on complex compressor applications, field operations issues or equipment modifications.

We believe that we are currently the largest natural gas compression company in the United States on the basis of aggregate rental horsepower. However, the natural gas compression services and fabrication business is highly competitive. Overall, we experience considerable competition from companies who may be able to more quickly adapt to changes within our industry and changes in economic conditions as a whole, more readily take advantage of available opportunities and adopt more aggressive pricing policies.

Because the business is capital intensive, our ability to take advantage of growth opportunities is limited by our ability to raise capital. To the extent that any of our competitors have a lower cost of capital or have greater access to capital than we do, they may be able to compete more effectively, which may allow them to more readily take advantage of available opportunities.

Compressor industry participants can achieve significant advantages through increased size and geographic breadth. As the number of rental units increases in a rental fleet, the number of sales, engineering, administrative and maintenance personnel required does not increase proportionately.

One of the significant cost items in the compressor rental business is the amount of inventory required to service rental units. Each rental company must maintain a minimum amount of inventory to remain competitive. As the size of the rental fleet increases, the required amount of inventory does not increase in the same proportion, thus providing economic efficiencies. The larger rental fleet companies can generate cost savings through improved purchasing power and vendor support.

We believe that we compete effectively on the basis of price, customer service, and flexibility in meeting customer needs and quality and reliability of our compressors and related services. A few major fabricators, some of whom also compete with us in the compressor rental business, continue to be aggressive competitors in the compressor fabrication business. In our production and processing equipment business, we have different competitors in the standard and custom engineered equipment markets. Competitors in the standard equipment market include several large companies and a large number of small, regional fabricators. Competition in the standard equipment market is generally based upon price, availability, the ability to provide integrated projects and level of product support after the sale. Our competition in the custom engineered market usually consists of larger companies. Increasingly, the ability to fabricate these large systems near to the point of end-use is a major competitive issue.

We are subject to various federal, state, local and foreign laws and regulations relating to the environment, health and safety, including regulations and permitting for air emissions, wastewater and stormwater discharges and waste handling and disposal activities. From time to time as part of the regular overall evaluation of our operations, including newly acquired operations, we apply for or amend facility permits with respect to stormwater or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us to new or revised permitting conditions that may be onerous or costly to comply with. In addition, certain of our customer service arrangements

may require us to operate, on behalf of a specific customer, petroleum storage units such as underground tanks, or pipelines and other regulated units, all of which may impose additional regulatory compliance and permitting obligations. Failure to comply with these environmental laws and regulations or associated permits may result in the assessment of administrative, civil, and criminal penalties, the imposition of investigatory and remedial obligations, and the issuance of injunctions as to future compliance. Moreover, as with any owner or operator of real property, we are subject to clean-up costs and liability for regulated substances or any other toxic or hazardous wastes that may exist on or have been released under any of our properties.

In connection with our due diligence investigation of potential new properties for acquisition, we typically perform an evaluation to identify potentially significant environmental issues and take measures to have such issues addressed by the seller or ourselves, as appropriate under the circumstances. We cannot be certain, however, that all such possible environmental issues will be identified and fully addressed prior to our acquisition of new properties. Moreover, the handling of petroleum products and other regulated substances is a normal part of our operations and we have experienced occasional minor spills or incidental leakages in connection with our operations. As part of the regular overall evaluation of our operations, including newly acquired facilities, we assess the compliance and permitting status of these operations and facilities with applicable environmental laws and regulations and seek to address identified issues in accordance with applicable law.

The Comprehensive Environmental Response, Compensation and Liability Act, also known as “CERCLA” or the “Superfund” law, imposes liability, without regard to fault or the legality of the original conduct, on persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the owner or operator of the facility or disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances. Under CERCLA and similar state laws, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. Furthermore, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment.

The Resource Conservation and Recovery Act (“RCRA”) and regulations promulgated by it govern the generation, storage, transfer and disposal of hazardous wastes. We must comply with RCRA regulations for any of our operations that involve the generation, management or disposal of hazardous wastes (such as painting activities or the use of solvents). In addition, to the extent we operate underground tanks on behalf of specific customers, such operations may be regulated under RCRA. We believe we are in substantial compliance with RCRA and are not aware of any current claims against us alleging RCRA violations. We cannot provide any assurance, however, that we will not receive such notices of potential liability in the future.

We currently own or lease, and in the past have owned or leased, a number of properties that have been used in support of our operations for a number of years. Although we have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons, hazardous substances, or other regulated wastes may have been disposed of or released on or under the properties owned or leased by us or on or under other locations where such materials have been taken for disposal. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of hydrocarbons, hazardous substances or other regulated wastes was not under our control. These properties and the materials released or disposed thereon may be subject to CERCLA, RCRA, and analogous state laws. Under such laws, we could be required to remove or remediate historical property contamination, or to perform remedial plugging or pit closure operations to prevent future contamination. We are not currently under any order requiring that we undertake or pay for any clean-up activities, nor are we aware of any current environmental claims by the government or private parties against us demanding remedial action or alleging that we are liable for remedial costs already incurred. However, we cannot provide any assurance that we will not receive any such claims in the future.

The Federal Water Pollution Control Act of 1972, also known as the “Clean Water Act,” and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or the state. The EPA also has adopted regulations requiring covered industrial operators to obtain permits for storm water discharges. Costs may be associated with the treatment of wastewater or developing and implementing storm water pollution prevention plans. We believe that we are in substantial compliance with requirements under the Clean Water Act.

The Clean Air Act restricts the emission of air pollutants from many sources, including compressors and operational support facilities. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, certain states have or are considering and the federal government has recently passed more stringent air emission controls on off-road engines. These laws and regulations may affect the costs of our operations.

On June 25, 1999, we notified the Air Quality Bureau of the Environmental Protection Division, New Mexico Environment Department, of potential violations of regulatory and permitting requirements. The potential violations included failure to conduct required performance tests, failure to file required notices and failure to pay fees for compressor units located on sites for more than one year. We promptly paid the required fees and corrected the potential violations. On June 12, 2001, after the potential violations had been corrected, the Director of the Division issued a compliance order to us in connection with the potential violations. The compliance order assessed a civil penalty of $15,000 per day per alleged regulatory violation and permit; no total penalty amount was proposed in the compliance order. On October 3, 2003, the Division notified us that the total proposed penalty would be $759,072. However, since the alleged violations had been self-disclosed, that amount was reduced to $189,768. We have responded to the penalty assessment, challenging some of the calculations, and have proposed an alternative settlement amount. We are currently negotiating with the New Mexico Environment Department on the method of calculation and proposed settlement amounts, and the issue is not yet resolved. A Stipulated Motion for Extension of Time to File Answer has been filed which extends the deadline for filing our response to March 22, 2004.

We believe that we are currently in substantial compliance with environmental laws and regulations and that the phasing-in of recent more stringent air emission controls on off-road engines and other known regulatory requirements in the time periods currently contemplated by such laws and regulations will not have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows. It is possible that stricter environmental laws and regulations may be imposed in the future, such as more stringent air emission requirements or proposals to make currently non-hazardous wastes subject to more stringent and costly handling, disposal and clean-up requirements. While we may be able to pass on the additional costs of complying with such laws to our customers, there can be no assurance that attempts to do so will be successful. Accordingly, new laws or regulations or amendments to existing laws or regulations might require us to undertake significant capital expenditures and otherwise have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows.

Our operations outside the United States are potentially subject to similar foreign governmental controls and restrictions pertaining to the environment. We believe our operations are in substantial compliance with existing foreign governmental controls and restrictions and that compliance with these foreign controls and restrictions has not had a material adverse effect on our operations. We cannot provide any assurance, however, that we will not incur significant costs to comply with these foreign controls and restrictions in the future.

We operate in many different geographic markets, some of which are outside the United States. At December 31, 2003, of the approximately 925,000 horsepower of compression we had deployed

internationally, approximately 84% was located in Latin America (primarily in Venezuela, Argentina and Mexico) and approximately 11% was located in Canada. Changes in local economic or political conditions, particularly in Venezuela, Argentina and other parts of Latin America, could have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows. Additional risks inherent in our international business activities include the following:


	•	difficulties in managing international operations;

	•	unexpected changes in regulatory requirements;

	•	tariffs and other trade barriers which may restrict our ability to enter into new markets;

	•	changes in political conditions;

	•	potentially adverse tax consequences;

	•	restrictions on repatriation of earnings or expropriation of property;

	•	the burden of complying with foreign laws; and

	•	fluctuations in currency exchange rates and the value of the U.S. dollar.

Our future plans involve expanding our business in international markets where we currently do not conduct business. Our decentralized management structure and the risks inherent in new business ventures, especially in international markets where local customs, laws and business procedures present special challenges, may affect our ability to be successful in these ventures or avoid losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have significant operations that expose us to currency risk in Argentina and Venezuela. To mitigate that risk, the majority of our existing contracts provide that we receive payment in or based on U.S. dollars rather than Argentine pesos and Venezuelan bolivars, thus reducing our exposure to fluctuations in their value.

Although the operating environment in Argentina has since stabilized, in January 2002, Argentina devalued its peso against the U.S. dollar and imposed significant restrictions on fund transfers internally and outside the country. In addition, the Argentine government enacted regulations to temporarily prohibit enforcement of contracts with exchange rate-based purchase price adjustments. Instead, payment under such contracts could either be made at an exchange rate negotiated by the parties or, if no such agreement were reached, a preliminary payment could be made based on a one dollar to one peso equivalent pending a final agreement. The Argentine government also required the parties to such contracts to renegotiate the price terms within 180 business days of the devaluation. We have renegotiated all of our agreements in Argentina. As a result of these negotiations, we received approximately $11.2 million in reimbursements in 2002 and $0.7 million in 2003. For the year ended December 31, 2003, our Argentine operations represented approximately 5% of our revenue and 9% of our gross profit. During the years ended December 31, 2003 and 2002, we recorded an exchange gain of approximately $0.5 million and an exchange loss of approximately $9.9 million, respectively, for assets exposed to currency translation in Argentina. The economic situation in Argentina is subject to change. To the extent that the situation in Argentina deteriorates, exchange controls continue in place and the value of the peso against the dollar is reduced further, our results of operations in Argentina could be materially and adversely affected which could result in reductions in our net income.

be materially and adversely affected, which could result in reductions in our net income. As a result of the disruption in our operations in Venezuela, during the fourth quarter of 2002, our international rental revenues decreased by approximately $2.7 million. In the twelve months ended December 31, 2003, we recognized approximately $2.7 million of billings to Venezuelan customers that were not recognized in 2002 due to concerns about the ultimate receipt of those revenues. In addition, a recent movement to remove President Chávez has resulted in renewed civil strife in Venezuela. If such strife continues or escalates, our results of operations in Venezuela could be further materially and adversely affected.

During the years ended December 31, 2003 and 2002, we recorded exchange losses of approximately $2.4 million and $5.8 million, respectively, for assets exposed to currency translation in Venezuela. For the year ended December 31, 2003, our Venezuelan operations represented approximately 11% of our revenue and 18% of our gross profit. At December 31, 2003, we had approximately $23.0 million in accounts receivable related to our Venezuelan operations.

In February 2003, the Venezuelan government fixed the exchange rate to 1,600 bolivars for each U.S. dollar. In February 2004, the government devalued the currency by approximately 17%. The impact of the devaluation on our results will depend upon the amount of our assets (primarily working capital) exposed to currency fluctuation in Venezuela in future periods. As of December 31, 2003, we had approximately $6.0 million in net assets exposed to currency fluctuation in Venezuela. Based on these assets, a 10% change in exchange rates would result in a $0.5 million gain or loss in Venezuela.

As part of our acquisition of the gas compression business of Schlumberger, we acquired minority interests in three joint ventures in Venezuela. As a minority investor in these joint ventures, we will not be able to control their operations and activities, including, without limitation, whether and when they distribute cash or property to their holders. In January 2003, we gave notice of our intent to exercise our right to put our interest in one of these joint ventures, the PIGAP II joint venture, back to Schlumberger Surenco. If not exercised, the put right would have expired as of February 1, 2003. On May 14, 2003, we entered into an agreement with Schlumberger Surenco to terminate the PIGAP II put and thus have retained our ownership interest in PIGAP II.

We are involved in a project to build and operate barge-mounted gas compression and gas processing facilities to be stationed in a Nigerian coastal waterway as part of the performance of a contract between an affiliate of The Royal/Dutch Shell Group (“Shell”) and Global Energy and Refining Ltd. (“Global”), a Nigerian company. We have completed the building of the required barge-mounted facilities. We understand that Global must complete a significant financing for part of the project in the near term or Shell would be able to terminate its contract with Global. Global has orally informed us that they have completed a financing, although it is not clear to us whether the funds raised will be sufficient to perform their obligations under the Shell contract. In light of the political environment in Nigeria, Global’s lack of a successful track record with respect to this project and other factors, there is no assurance that Global will be able to comply with its obligations under the Shell contract. We believe that Global is in default with respect to certain agreements they have with us, as a result of which we believe we have certain termination rights.

If Shell were to terminate its contract with Global for any reason or we were to terminate our involvement in the project, we would be required to find an alternative use for the barge facility which could result in a write-down of our investment. We currently have an investment of approximately $29.8 million associated with the barge facility and approximately $4.1 million associated with advances to, and our investment in, Global.

For financial data relating to the Company’s geographic concentrations, see Note 23 to the Notes to Consolidated Financial Statements included in Item 15 of this Form 10-K.

The following sets forth, as of March 12, 2004, the name, age and business experience for the last five years of each of our executive officers:

The following sets forth certain information regarding executive officers of the Company:

Chad C. Deaton was elected President, Chief Executive Officer and director in August 2002. From 1976 through 1984, Mr. Deaton served in a variety of positions with the Dowell Division of Dow Chemical. Following Schlumberger’s acquisition of Dowell in 1984, Mr. Deaton served in management positions with Schlumberger in Europe, Russia and the United States. Mr. Deaton was executive vice president of Schlumberger Oilfield Services from 1998 to 1999. From September 1999 to September 2001, Mr. Deaton served as a Senior Advisor to Schlumberger Oilfield Services.

John E. Jackson has served as Senior Vice President and Chief Financial Officer since February 2002. Prior to joining Hanover, Mr. Jackson served as Vice President and Chief Financial Officer of Duke Energy Field Services, a joint venture of Duke Energy and Phillips Petroleum that is one of the nation’s largest producers and marketers of natural gas liquids. Mr. Jackson joined Duke Energy Field Services as Vice President and Controller in April 1999 and was named Chief Financial Officer in February 2001. Prior to joining Duke Energy Field Services, Mr. Jackson served in a variety of treasury, controller and accounting positions at Union Pacific Resources between June 1981 and April 1999.

Mark S. Berg* has served as Senior Vice President, General Counsel and Secretary since May 2002. From 1997 through 2001, Mr. Berg was an executive officer of American General Corporation, a Fortune 500 diversified financial services company, most recently serving in the position of Executive Vice President, General Counsel and Secretary. Mr. Berg began his career in 1983 as an associate with the Houston-based law firm of Vinson & Elkins L.L.P. and served as a partner from 1990 through 1997.

Peter G. Schreck has served as Vice President — Treasury and Planning since September 2000. Mr. Schreck was previously employed in various financial positions by Union Pacific Corporation and its affiliated subsidiaries from 1988 through August 2000. Immediately prior to joining Hanover, Mr. Schreck held the position of Treasurer and Director of Financial Services for Union Pacific Resources Company.

Stephen P. York has served as Vice President and Corporate Controller since April 2002. Prior to joining Hanover, Mr. York served as Director, Payroll Production of Exult, Inc., a provider of web-enabled human resources management services in Charlotte, NC, since 2001. From 1981 to 2000, Mr. York held various management positions with Bank of America Corporation, including Senior Vice President — Personnel Operations, Senior Vice President — Controller/ General Accounting, Senior Vice President — Corporate Accounts Payable/ Fixed Assets, and Vice President — Audit Director. Mr. York was an accountant with KPMG Peat Marwick in Waco, TX, from 1979 to 1981.

* On February 27, 2004, Mr. Berg entered into a Separation Agreement with us and we announced that Mr. Berg plans to step down from his position at Hanover effective March 31, 2004.

As of December 31, 2003 we had approximately 5,500 employees, approximately 500 of whom are represented by a labor union. Furthermore, we had approximately 850 contract personnel. We believe that our relations with our employees and contract personnel are satisfactory.

We maintain a website which can be found at http://www.hanover-co.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and the amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 available on our website. Also, such information is readily available at the website of the Securities and Exchange Commission, which can be found at http://www.sec.gov.

A paper copy of any of the above-described filings is also available free of charge from the Company upon request by contacting Hanover Compressor Company, 12001 North Houston Rosslyn Road, Houston, Texas 77086, Attention: Corporate Secretary (281) 405-5175. You may also read and copy any document we file with the SEC at its public reference facilities at Room 1024, 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. Our SEC filings are also available at the offices of the New York Stock Exchange, Inc., 11 Wall Street, New York, New York 10005.

The following table describes the material facilities owned or leased by Hanover and our subsidiaries as of December 31, 2003:

Our corporate headquarters and compressor fabrication facility in Houston, Texas and our production equipment manufacturing facility in Columbus, Texas are mortgaged to secure the repayment of approximately $2.9 million (as of December 31, 2003) in indebtedness to a commercial bank.

Our executive offices are located at 12001 North Houston Rosslyn, Houston, Texas 77086 and our telephone number is (281) 447-8787.

Commencing in February 2002, approximately 15 putative securities class action lawsuits were filed against us and certain of our current and former officers and directors in the United States District Court for the Southern District of Texas. These class actions (together with subsequently filed actions) were consolidated into one case, Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust, On Behalf of Itself and All Others Similarly Situated, Civil Action No. H-02-0410, naming as defendants Hanover, Mr. Michael J. McGhan, Mr. William S. Goldberg and Mr. Michael A. O’Connor. The complaints asserted various claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sought unspecified amounts of compensatory damages, interest and costs, including legal fees. The court entered an order appointing Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust and others as lead plaintiffs on January 7, 2003 and appointed Milberg, Weiss, Bershad, Hynes & Lerach LLP as lead counsel. On September 5, 2003, lead plaintiffs filed an amended complaint in which they sought relief under Sections 10(b) of the Securities Exchange Act and Section 11 of the Securities Act against Hanover, certain former officers and directors and our auditor, PricewaterhouseCoopers LLP, on behalf of themselves and the class of persons who purchased Hanover securities between May 4, 1999 and December 23, 2002.

In the securities action, the plaintiffs allege generally that the defendants violated the federal securities laws by making misstatements and omissions in Hanover’s periodic filings with the SEC as well as in other public statements in connection with the transactions that were restated in 2002.

Commencing in February 2002, four derivative lawsuits were filed in the United States District Court for the Southern District of Texas, two derivative lawsuits were filed in state district court for Harris County, Texas (one of which was nonsuited and the second of which was removed to Federal District Court for the Southern District of Texas) and one derivative lawsuit was filed in the Court of Chancery for the State of Delaware in and for New Castle County. These derivative lawsuits, which were filed by certain of our shareholders purportedly on behalf of Hanover, alleged, among other things, that our directors breached their fiduciary duties to shareholders in connection with certain of the transactions that were restated in 2002, and sought unspecified amounts of damages, interest and costs, including legal fees. The derivative lawsuits in the United States District Court for the Southern District of Texas were consolidated on August 19 and August 26, 2002 into the Harbor Finance Partners derivative lawsuit. With that consolidation, the pending derivative lawsuits were:

On October 2, 2003, the Harbor Finance Partners derivative lawsuit was consolidated into the Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust securities class action.

On and after March 26, 2003, three plaintiffs filed separate putative class actions against Hanover, certain named individuals and other purportedly unknown defendants, in the United States District Court for the Southern District of Texas. The alleged class was composed of persons who participated in or were beneficiaries of The Hanover Companies Retirement and Savings Plan, which was established by Hanover pursuant to Section 401(k) of the United States Internal Revenue Code of 1986, as amended. The purported class action sought relief under ERISA based upon Hanover’s and the individual defendants’ alleged mishandling of Hanover’s 401(k) Plan. The three ERISA putative class actions are entitled: Kirkley v. Hanover, Case No. H-03-1155; Angleopoulos v. Hanover, Case No. H-03-1064; and Freeman v. Hanover, Case No. H-03-1095. On August 1, 2003, the three ERISA class actions were consolidated into the Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust federal securities class action. On October 9, 2003, a consolidated amended complaint was filed by the plaintiffs in the ERISA class action against Hanover, Michael McGhan, Michael O’Connor and William Goldberg, which included the same allegations as indicated above, and was filed on behalf of themselves and a class of persons who purchased or held Hanover securities in their 401(k) Plan between May 4, 1999 and December 23, 2002.

These actions alleged generally that, in connection with the transactions that were restated in 2002, we and certain individuals acting as fiduciaries of Hanover’s 401(k) Plan breached our fiduciary duties to the plan participants by offering Hanover common stock as an investment option, failing to provide material information to plan participants regarding the suitability of Hanover common stock as an investment alternative, failing to monitor the performance of plan fiduciaries, and failing to provide material information to other fiduciaries.

On October 23, 2003, we entered into a Stipulation of Settlement, which settled all of the claims underlying the putative securities class action, the putative ERISA class action and the shareholder derivative actions described above. The terms of the settlement provided for us to: (1) make a cash payment of approximately $30 million (of which $26.7 million was funded by payments from Hanover’s directors and officers insurance carriers), (2) issue 2.5 million shares of our common stock, and (3) issue a contingent note with a principal amount of $6.7 million. The note is payable, together with accrued interest, on March 31, 2007 but will be extinguished (with no money owing under it) if our common stock trades at or above the average price of $12.25 per share for 15 consecutive trading days at any time between March 31, 2004 and March 31, 2007. In addition, upon the occurrence of a change of control that involves us, if the change of control or shareholder approval of the change of control occurs before February 9, 2005, which is twelve months after final court approval of the settlement, we will be obligated to contribute an additional $3 million to the settlement fund. As part of the settlement, we have also agreed to implement corporate governance enhancements, including allowing shareholders owning more than 1% but less than 10% of our outstanding common stock to participate in the process to appoint two independent directors to our board of directors (pursuant to which on February 4, 2004 we appointed Margaret K. Dorman and Stephen M. Pazuk to our board of directors) and making certain changes to our code of conduct.

GKH Investments, L.P. and GKH Private Limited (collectively “GKH”) which, as of December 31, 2003, together owned approximately 10% of Hanover’s outstanding common stock and which sold shares in our March 2001 secondary offering of common stock, are parties to the settlement and have agreed to settle claims against them that arise out of that offering as well as other potential securities, ERISA, and derivative claims. The terms of the settlement provide for GKH to transfer 2.5 million shares of Hanover common stock from their holdings or from other sources to the settlement fund.

On February 9, 2004, the United States District Court for the Southern District of Texas entered three Orders and Final Judgments, approving the settlement on the terms agreed upon in the Stipulation of Settlement with respect to all of the claims described above including the dismissal of each of the actions other than the Coffelt Family derivative action filed in the Delaware Chancery Court. The court also entered an Order and Final Judgment approving the plans of allocation with respect to each action, as well as an Order and Final Judgment approving the schedule of attorneys’ fees for counsel for the settling plaintiffs. The time in which these Orders and Final Judgments may be appealed expired on March 10, 2004 without any appeal being lodged. In addition, on March 16, 2004, the Delaware Chancery Court dismissed the Coffelt Family derivative action. The settlement has therefore become final and will be implemented according to its terms. In March 2004, we issued and delivered to the escrow agent for the settlement fund 2.5 million shares of Hanover common stock, as required by the settlement. Our independent auditor, PricewaterhouseCoopers, is not a party to the settlement and remains a party to the securities class action.

Based on the terms of the settlement agreement and individual components of the settlement, we recorded the cost of the litigation settlement. The details of the litigation settlement charge were as follows (in thousands):

The $3.6 million estimated fair value of the note to be issued was based on the present value of the future cash flows discounted at borrowing rates currently available to us for debt with similar terms and maturities. Using a market-borrowing rate of 9.3%, the principal value and the stipulated interest rate required by the note of 5% per annum, a discount of $0.8 million was computed on the note to be issued. Upon the issuance of the note, the discount will be amortized to interest expense over the term of the note. Because the note could be extinguished without a payment (if our common stock trades at or above the average price of $12.25 per share for 15 consecutive trading days at any time between March 31, 2004 and March 31, 2007), we will be required to record an asset when the note is issued for the value of the embedded derivative, as required by SFAS 133. We estimated the value of the derivative and reduced the amount we included for the estimate of the value of the note by approximately $2.3 million at December 31, 2003. This asset will be marked to market in future periods with any increase or decrease included in our statement of operations.

As of December 31, 2003, our accompanying balance sheet included a $33.4 million long-term liability and $32.7 million in accrued liabilities related to amounts that are expected to be paid in the next twelve months. During the second quarter of 2003, the $26.7 million receivable from the insurance carriers and $2.8 million of our portion of the cash settlement was paid into an escrow fund and is included in the accompanying balance sheet as restricted cash. In the first quarter of 2004, we will reclassify $29.8 million, the value accrued for the stock to be paid, from other liabilities to stockholders’ equity and will include the shares in our outstanding shares used for earnings per share calculations.

On November 14, 2002, the SEC issued a Formal Order of Private Investigation relating to the transactions underlying and, other matters relating to, the restatements of our financial statements. In December 2003, we entered into a settlement with the SEC. Without admitting or denying any of the SEC’s findings, we consented to the entry of a cease and desist order requiring future compliance with

As of December 31, 2003, we had incurred approximately $15.1 million in legal related expenses in connection with the internal investigations, the putative class action securities and ERISA lawsuits, the derivative lawsuits and the SEC investigation. Of this amount, we advanced approximately $2.3 million on behalf of certain current and former officers and directors in connection with the above-named proceedings. We intend to advance any litigation costs of our current and former officers and directors, subject to the limitations imposed by Delaware and other applicable law and Hanover’s certificate of incorporation and bylaws. We do not expect additional legal fees and administrative costs in connection with the settlement of the litigation, advances on behalf of current and former officers and directors for legal fees and other related costs to exceed $2.5 million, the remaining balance of the accrual.

In the ordinary course of business we are involved in various other pending or threatened legal actions, including environmental matters. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

No matters were submitted to a vote of our shareholders during the fourth quarter of our fiscal year ended December 31, 2003.

Our common stock is listed on the New York Stock Exchange under the symbol “HC.” As of March 19, 2004, 85,536,605 shares of our common stock were issued and held of record by approximately 700 holders. On March 19, 2004, the last reported sales price of our common stock on the New York Stock Exchange was $10.87. The following table presents, for the periods indicated, the range of high and low quarterly closing sales prices of our common stock, as reported on the New York Stock Exchange.

We have not paid any cash dividends on our common stock since our formation and do not anticipate paying such dividends in the foreseeable future. The Board of Directors anticipates that all cash flow generated from operations in the foreseeable future will be retained and used to pay down debt, develop and expand our business. Any future determinations to pay cash dividends on our common stock will be at the discretion of the our Board of Directors and will be dependent upon our results of operations and financial condition, credit and loan agreements in effect at that time and other factors deemed relevant by the Board of Directors. Our bank credit facility, with the JPMorgan Chase Bank, as agent, prohibits us (without the lenders’ prior approval) from declaring or paying any dividend (other than dividends payable solely in our common stock or in options, warrants or rights to purchase such common stock) on, or making similar payments with respect to, our capital stock.

See Item 12 of this report for disclosures regarding securities authorized for issuance under equity compensations plans.

In the table below we have presented certain selected financial data for Hanover for each of the five years in the period ended December 31, 2003. The historical consolidated financial data has been derived from Hanover’s audited consolidated financial statements. The following information should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K and the Consolidated Financial Statements in Item 15 of this Form 10-K.


(1)	During 2002, we announced a series of restatements that ultimately reduced our initially reported pre-tax income by $0.4 million, or 0.3%, for the year ended December 31, 2001, by $14.5 million, or 15.5%, for the year ended December 31, 2000, and by $3.1 million, or 4.9%, for the year ended December 31, 1999, although certain restatements resulted in a larger percentage adjustment on a quarterly basis.

(2)	For a description of significant business acquisitions, see Note 2 in Notes to the Consolidated Financial Statements in Item 15 of this Form 10-K. In the fourth quarter of 2002, we decided to discontinue certain businesses. For a description of the discontinued operations, see Note 3 in Notes to the Consolidated Financial Statements in Item 15 of this Form 10-K.

(3)	In June 2001, the FASB issued Statement of Financial Accounting Standards 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under SFAS 142, amortization of goodwill to earnings is discontinued. Instead, goodwill is reviewed for impairment annually or whenever events indicate impairment may have occurred. SFAS 142 was effective for us on January 1, 2002. For financial data relating to our goodwill and other intangible assets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 9 in Notes to the Consolidated Financial Statements in Item 15 of this Form 10-K.

(4)	In accordance with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB 51” as revised in December 2003 (“FIN 46”), for periods ending after June 30, 2003, we have included in our consolidated financial statements the special purpose entities that lease compression equipment to us. As a result, on July 1, 2003, we added approximately $897 million of compression equipment assets, net of accumulated depreciation, and approximately $1,139.6 million of our compression equipment lease obligations (including approximately $1,105.0 million in debt) to our balance sheet. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Leasing Transactions and Accounting Change for FIN 46” in Item 7 of this Form 10-K.

(5)	On October 23, 2003, we entered into a Stipulation of Settlement, which became final on March 10, 2004 and settled all of the claims underlying the putative securities class action, the putative ERISA class action and the shareholder derivative actions discussed in “Legal Proceedings” in Item 3 of this Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 — Provision for Cost of Litigation Settlement” in Item 7 of this Form 10-K.

Management’s discussion and analysis of the results of operations and financial condition of Hanover Compressor Company should be read in conjunction with the Consolidated Financial Statements and related Notes thereto.

We are a global market leader in the full service natural gas compression business and are also a leading provider of service, fabrication and equipment for oil and natural gas processing and transportation applications. We sell and rent this equipment and provide complete operation and maintenance services, including run-time guarantees, for both customer-owned equipment and our fleet of rental equipment. Hanover was founded as a Delaware corporation in 1990, and has been a public company since 1997. Our customers include both major and independent oil and gas producers and distributors as well as national oil and gas companies in the countries in which we operate. Our maintenance business, together with our parts and service business, provides solutions to customers that own their own compression and surface production and processing equipment, but want to outsource their operations. We also fabricate compressor and oil and gas production and processing equipment and provide gas processing and treating, gas measurement and oilfield power generation services, primarily to our domestic and international customers as a complement to our compression services. In addition, through our subsidiary, Belleli, we provide engineering, procurement and construction services primarily related to the manufacturing of heavy wall reactors for refineries and construction of desalination plants, primarily for use in Europe and the Middle East.

We experienced rapid growth from 1998 through 2001 primarily as a result of significant acquisitions during 2000 and 2001, during which period our total assets increased from approximately $753 million as of December 31, 1999 to approximately $2.3 billion as of December 31, 2001, and our debt, including compression equipment leases obligations, increased from approximately $572 million at December 31, 1999 to approximately $1,736 million at December 31, 2001.

In addition to substantially increasing our outstanding debt, our growth exceeded our infrastructure capabilities and strained our internal control environment. During 2002, we announced a series of restatements of certain transactions that occurred in 1999, 2000 and 2001. In November 2002, the SEC issued a Formal Order of Private Investigation relating to the transactions underlying and other matters relating to the restatements. In addition, during 2002, Hanover and certain of its past and present officers and directors were named as defendants in a consolidated action pending in federal court that included a putative securities class action, a putative class action arising under the Employee Retirement Income Security Act and shareholder derivate actions. The litigation related principally to the matters involved in the transactions underlying the restatements of our financial statements. As discussed below, both the SEC investigation and the litigation have recently been settled. For a more detailed discussion of the SEC investigation and the securities litigation, see “Legal Proceedings” in Item 3 of this Form 10–K.

Our operations depend upon the levels of activity in natural gas development, production, processing and transportation. Such activity levels typically decline when there is a significant reduction in oil and gas prices or significant instability in energy markets. In recent years, oil and gas prices have been extremely volatile. In addition, domestic natural gas consumption fell in 2001 and 2002 as a result of the recent economic slowdown in the United States. Due to a deterioration in market conditions, we experienced a decline in the demand for our products and services in 2002 and 2003, which, along with the distractions associated with our management reorganization, resulted in reductions in the utilization of our compressor rental fleet and our revenues, gross margins and profits in those years.

The North American rig count increased by 27% to 1,531 at December 31, 2003 from 1,204 at December 31, 2002, and the twelve-month rolling average North American rig count increased by 28% to 1,404 at December 31, 2003 from 1,097 at December 31, 2002. In addition, the twelve-month rolling average New York Mercantile Exchange wellhead natural gas price increased to $5.39 per Mcf at December 31, 2003 from $3.22 per Mcf at December 31, 2002. Despite the increase in natural gas prices and the recent increase in the rig count, U.S. natural gas production levels have not significantly changed. Recently, we have not experienced any significant growth in domestic rentals or purchases of equipment and services by our customers, which we believe is primarily the result of the lack of a significant increase in U.S. natural gas production levels. However, with several non-operational issues behind us, we are focused on improving our sales success ratio on new bid opportunities and anticipate some revenue growth in 2004.

During 2002, a number of our executives involved directly or indirectly with the transactions underlying the restatements described above resigned, including our former Chief Executive Officer, Chief Financial Officer, Vice Chairman of our board of directors, Chief Operating Officer and the head of our international operations. During and after 2002, we hired and appointed a new Chief Executive Officer and Chief Financial Officer, hired and appointed our first General Counsel, hired a new Controller, and hired new managers of Human Resources, Financial Reporting and Policy Administration. During 2002, we added three independent directors to our board of directors and elected an independent Chairman of the Board from among the three new directors. In addition, on February 4, 2004, we added two new independent directors to our board of directors. Our new management team has undertaken the following initiatives to improve our operations and our liquidity position.

Focus on core business. We have built our leading market position through our strengths in compression rentals, compressor fabrication, production and processing equipment rental and fabrication and parts and service. We are focusing our efforts on these businesses and on streamlining operations in our core markets. In connection with these efforts, we have decided to exit and sell certain non-core business lines. In December 2002, our board of directors approved management’s recommendation to exit and sell our non-oilfield power generation assets and certain used equipment business lines. In 2003, we sold our interests in two non-oilfield power generation facilities for approximately $27.2 million, consisting of $6.4 million in cash, $3.3 million in notes that mature in 2004 and 2005 and the release from a capital lease that had an outstanding balance of approximately $17.2 million.

Enhance return on capital. We are seeking to deploy our capital more effectively in order to improve the total returns from our investments. To achieve this objective, we intend to work to improve our operating performance and profitability by focusing on the following initiatives:


	•	Improve our domestic fleet utilization by limiting the addition of new units, where applicable and permissible under our bank credit facility and the conforming amendments to our compression equipment lease obligations, moving idle domestic units into service in international markets and retiring less profitable units. During 2003, we renewed several key domestic customer alliances involving approximately 300,000 horsepower, retired approximately 41,000 horsepower, moved approximately 36,000 horsepower to international markets and increased compression under contract by approximately 50,000 horsepower. As a result, domestic utilization increased to 76% at December 31, 2003 from 72% at December 31, 2002.

	•	Increase prices selectively for our domestic rental business. In early 2003, we began to selectively introduce price increases for our domestic compression rental business. Such price increases, along with a slight improvement in market conditions, resulted in a 3% increase in revenue from our domestic rentals business in the six months ended December 31, 2003 as compared to the six months ended December 31, 2002.

	•	Improve operating efficiencies by consolidating certain of our operations. During 2003, we shut down six facilities and reduced our U.S. headcount by approximately 550 employees.


	•	Increase activity in our fabrication sales and parts and service operations to take advantage of our available fabrication capacity and field technician manpower.

Exploit international opportunities. International markets continue to represent the greatest growth opportunity for our business. We believe that these markets are underserved. In addition, we typically see higher pricing in international markets relative to the domestic market. During 2003, we added approximately 50,000 horsepower to our international rental fleet under contract. We intend to allocate additional resources toward international markets, to open offices abroad, where appropriate, and to move idle domestic units into service in international markets, where applicable. However, our ability to invest capital resources and allocate assets into international markets is restricted by our new bank credit facility and the conforming amendments to our compression equipment lease obligations and by our intentions to reduce outstanding debt as described below.

Improve our capital discipline. We plan to improve our capital discipline by lowering the working capital we have employed and reducing our substantial level of debt with both excess operating cash flow and proceeds from asset sales. We are also focused on improving the management of our working capital by lowering the number of days outstanding for our accounts receivable and reducing inventory levels. To reduce debt, we are committed to under-spending cash flow, and we are currently planning to allocate approximately $180 million of our operating cash flow generated from 2004 through 2006 to debt repayment.

As part of our plans to address our substantial level of debt resulting from our growth through acquisitions, we engaged in a number of refinancing transactions in 2003 to address liquidity issues associated with our debt. In December 2003, we issued $200 million aggregate principal amount of our 8.625% Senior Notes due 2010 and $143.8 million aggregate principal amount of our 4.75% Convertible Senior Notes due 2014. The net proceeds from these offerings were used to repay outstanding indebtedness under our 1999A equipment lease notes due June 2004 and a portion of the outstanding indebtedness under our previous bank credit facility. In addition, in December 2003, we entered into a new $350 million bank credit facility that matures in December 2006. The new bank credit facility replaced our previous bank credit facility that matured in November 2004. The new bank credit facility provides additional flexibility to support our short-term liquidity needs. Also, in October 2003, the PIGAP II joint venture, in which we have a 30% interest, engaged in a project financing and distributed approximately $78.5 million to us, of which approximately $59.9 million was used to pay off a non-recourse promissory note issued by one of our subsidiaries that had been secured by our interest in PIGAP II. We also restructured a $150 million subordinated note that had been issued to Schlumberger in connection with an acquisition. We restructured the note as our Zero Coupon Subordinated Notes due March 31, 2007 and reduced the implicit interest rate.

Resolved pending litigation and investigations. In 2003, we entered into an agreement to settle the pending securities litigation. On February 9, 2004, the United States District Court for the Southern District of Texas entered three Orders and Final Judgments, approving the settlement on the terms agreed upon in the Stipulation of Settlement with respect to all of the pending claims. The court also entered an Order and Final Judgment approving the plans of allocation with respect to each action, as well as an Order and Final Judgment approving the schedule of attorneys’ fees for counsel for the settling plaintiffs. The time in which these Orders and Final Judgments may be appealed expired on March 10, 2004 without any appeal being lodged. The settlement has therefore become final and will be implemented according to its terms.

The settlement provides for us to (1) make a cash payment of approximately $30 million (of which $26.7 million was funded by payments from our directors and officers insurance carriers), (2) issue 2.5 million shares of our common stock, and (3) issue a contingent note with a principal amount of $6.7 million, which may be extinguished in certain circumstances. In addition, upon the occurrence of a change of control that involves us, if the change of control or shareholder approval of the change of control occurs before February 9, 2005, which is twelve months after final court approval of the settlement, we will be obligated to contribute an additional $3 million to the settlement fund. Also, in December 2003, a

settlement between the SEC and us was entered by the SEC. Without admitting or denying any of the SEC’s findings, we consented to the entry of a cease and desist order requiring future compliance with certain periodic reporting, record keeping and internal control provisions of the securities laws. The settlement with the SEC did not impose any monetary penalty on us.

Net losses. We recorded a consolidated net loss of $208.3 million for the year ended December 31, 2003, as compared to a consolidated net loss of $116.1 million and consolidated net income of $72.4 million for the years ended December 31, 2002 and 2001, respectively. Our results for each of the last two years have been affected by a number of charges that may not necessarily be indicative of our core operations or our future prospects and impact comparability between years. These special items are discussed in “Results of Operations” below.

Results by Segment. The following table summarizes revenues, expenses and gross profit margin percentages for each of our business segments (dollars in thousands):

As a result of the war in Iraq, the strengthening of the Euro and generally unfavorable economic conditions, we believe that the estimated fair value of Belleli declined significantly during 2003. Upon gaining complete control of Belleli and assessing our long-term growth strategy, we determined that their general factors in combination with the specific economic factors impacting Belleli had significantly and adversely impacted the timing and amount of the future cash flows that we expected Belleli to generate. We currently do not expect to realize our original growth expectations for Belleli in the timeframe that we originally forecasted.

We had previously announced our plan to reduce our U.S. headcount by approximately 500 employees worldwide and to close four fabrication facilities. During the year ended December 31, 2002, we accrued approximately $2.7 million in employee separation costs related to the reduction in workforce. During the year ended December 31, 2003, we paid approximately $2.0 million in employee separation costs, implemented further cost saving initiatives and closed two additional facilities. We expect to incur an additional $0.7 million in employee separation costs related to the completion of these activities. Since December 31, 2002, our U.S. workforce has decreased by approximately 550 employees.

During the fourth quarter of 2002, we reviewed our business lines and our board of directors approved management’s recommendation to exit and sell our non-oilfield power generation facilities and certain used equipment business lines. The results from these businesses are reflected as discontinued operations in our consolidated financial statements. Additionally, during 2003 and 2002, we recorded certain write-downs, asset impairments and restructuring costs. A summary of these charges and the related impact on our financial results is discussed below.

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and accounting policies, including those related to bad debts, inventories, fixed assets, investments, intangible assets, income taxes, warranty obligations, sale leaseback transactions, revenue recognition and contingencies and litigation. We base our estimates on historical experience and on other assumptions that we

believe are reasonable under the circumstances. The results of this process form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and these differences can be material to our financial condition, results of operations and liquidity.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of a customer deteriorates, resulting in an impairment of its ability to make payments, additional allowances may be required. As of December 31, 2003, our largest account receivable from a customer was approximately $10.3 million. During 2003, 2002 and 2001, we recorded approximately $4.0 million, $7.1 million and $4.9 million in additional allowances for doubtful accounts, respectively. A 10% increase in bad debt expense would have resulted in approximately $0.4 million in additional selling, general and administrative expense for 2003.

We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those expected by management, additional inventory write-downs may be required. During 2003, 2002 and 2001, we recorded approximately $3.0 million, $13.9 million and $2.3 million, respectively, in additional reserves for obsolete and slow moving inventory.

We review for the impairment of long-lived assets, including property, plant and equipment, assets held for sale and investments in non-consolidated affiliates whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. When necessary, an impairment loss is recognized and represents the excess of the asset’s carrying value as compared to its estimated fair value and is charged to the period in which the impairment occurred. The determination of what constitutes an indication of possible impairment, the estimation of future cash flows and the determination of estimated fair value are all significant judgments. During 2003 and 2002, as a result of the review of our rental fleet, we recorded $14.3 million and $34.5 million, respectively, in additional depreciation on equipment that was retired and equipment that was expected to be sold or abandoned.

In addition, we perform an annual goodwill impairment test, pursuant to the requirements of SFAS 142, in the fourth quarter of each year, to determine if the estimated recoverable value of the reporting unit exceeds the net carrying value of the reporting unit, including the applicable goodwill. We determine the fair value of our reporting units using a combination of the expected present value of future cash flows and the market approach. The present value of future cash flows is estimated using our most recent five-year forecast, the weighted average cost of capital and a market multiple on the reporting units earnings before interest, tax, depreciation and amortization. Changes in forecasts could effect the estimated fair value of our reporting units and result in a goodwill impairment charge in a future period. We used a 12% weighted average cost of capital in our analysis of the present value of future cash flows. During 2003 and 2002, we recorded $35.5 million and $52.1 million, respectively, in goodwill impairments as a result of our goodwill evaluations.

We hold minority interests in companies having operations or technology in areas that relate to our business, one of which is publicly traded and may experience volatile share prices. We record an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge

We must estimate our expected future taxable income in order to assess the realizability of our deferred income tax assets. As of December 31, 2003, we reported a net deferred tax liability of $28.3 million, which included gross deferred tax assets of $320.0 million, net of a valuation allowance of $55.0 million and gross deferred tax liabilities of $293.3 million. Numerous assumptions are inherent in the estimation of future taxable income, including assumptions about matters that are dependent on future events, such as future operating conditions and future financial conditions.

Additionally, we must consider any prudent and feasible tax planning strategies that might minimize the amount of deferred tax liabilities recognized or the amount of any valuation allowance recognized against deferred tax assets, if management has the ability to implement these strategies and the expectation of implementing these strategies if the forecasted conditions actually occur. The principal tax planning strategy available to us relates to the permanent reinvestment of the earnings of foreign subsidiaries. Assumptions related to the permanent reinvestment of the earnings of foreign subsidiaries are reconsidered periodically to give effect to changes in our businesses and in our tax profile.

As a result of current year operating losses and charges in 2003, we were in a net deferred tax asset position (for U.S. income tax purposes) for the first time in 2003. Due to our cumulative domestic losses over the past three years, we could not reach the conclusion that it was “more likely than not” that certain of our U.S. deferred tax assets will be realized in the future. Accordingly, we provided a $25.7 million deferred tax valuation allowance against our net U.S. deferred tax asset. We will be required to record additional valuation allowances if our domestic deferred tax asset position is increased and the “more likely than not” criteria of SFAS 109 is not met. If we are required to record additional valuation allowances, our effective tax rate will be increased, perhaps substantially above the statutory rate. Our preliminary analysis leads us to believe that we will likely be required to record additional valuation allowances in the first quarter of 2004, unless we are able to implement tax planning strategies that would minimize or eliminate the amount of such additional valuation allowance prior to the end of the first quarter, and may be required to record additional valuation allowances in future periods.

We recognize revenue and profit for our fabrication operations as work progresses on long-term, fixed-price contracts using the percentage-of-completion method, which relies on estimates of total expected contract revenue and costs. We follow this method because reasonably dependable estimates of the revenue and costs applicable to various stages of a contract can be made and because the fabrication projects usually last several months. Recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged to income in the period in which the facts that give rise to the revision become known. The average duration of these projects is four to thirty-six months. Due to the long-term nature of some of our jobs, developing the estimates of cost often requires significant judgment.

We estimate percentage of completion for compressor and processing equipment fabrication on a direct labor hour to total labor hour basis. This calculation requires management to estimate the number of total labor hours required for each project and to estimate the profit expected on the project. Production and processing equipment fabrication percentage of completion is estimated using the direct labor hour and cost to total cost basis. The cost to total cost basis requires us to estimate the amount of total costs (labor and materials) required to complete each project. Since we have many fabrication projects in process at any given time, we do not believe that materially different results would be achieved if different estimates, assumptions, or conditions were used for any single project.

Factors that must be considered in estimating the work to be completed and ultimate profit include labor productivity and availability, the nature and complexity of work to be performed, the impact of

change orders, availability of raw materials and the impact of delayed performance. If the aggregate combined cost estimates for all of our fabrication businesses had been higher or lower by 1% in 2003, our results of operations before tax would have been decreased or increased by approximately $3.3 million. As of December 31, 2003, we had approximately $41.7 million in costs and estimated earnings on uncompleted contracts in excess of billings to our customers.

In the ordinary course of business, we are involved in various pending or threatened legal actions. While we are unable to predict the ultimate outcome of these actions, SFAS 5, “Accounting for Contingencies” requires management to make judgments about future events that are inherently uncertain. We are required to record (and have recorded) a loss during any period in which we, based on our experience, believe a contingency is likely to result in a financial loss to us. In making its determinations of likely outcomes of pending or threatened legal matters, management considers the evaluation of counsel knowledgeable about each matter. See “Legal Proceedings” in Item 3 of this Form 10-K.

For the year ended December 31, 2003, revenue increased to $1,095.4 million over 2002 revenue of $1,028.8 million. Included in 2003 revenue was $116.8 million of production and processing equipment fabrication revenue from Belleli, compared to $15.4 million for the same period a year earlier. We began including Belleli in our consolidated financial results in November 2002.

Net loss for the year ended December 31, 2003, was $208.3 million, compared with a net loss of $116.1 million in 2002. As detailed in the chart below, included in the 2003 net loss was $250.6 million in pre-tax charges. In addition, we recorded a $25.7 million U.S. deferred tax valuation allowance that was included in the provision for income taxes. The net loss in 2002 included $182.7 million in pre-tax charges for the write-down of our investment in discontinued operations, the write-down of a portion of our domestic compression rental fleet, severance costs and bad debt reserves.

In addition, 2003 net loss increased due to a decrease in gross margin percentages for both our domestic and international rental fleet and our fabrication businesses and an increase in selling, general and administrative expense and depreciation expense which are discussed further below. Our 2003 net loss included a $39.2 million pre-tax loss from the inclusion of Belleli, including a $35.5 million goodwill impairment discussed further below.

Included in the net loss for 2003 were the following pre-tax charges (in thousands):

For 2003, domestic rental revenues and gross profit decreased from 2002 due to weaker demand, stronger competition, which resulted in lower fleet utilization in the first six months of the year relative to the same period a year earlier, and higher operating expenses including higher repairs and maintenance and start up costs for a large gas plant in 2003. As a result of lower fleet utilization in the first half of the year, our average domestic utilization for 2003 was approximately 3% lower than our average utilization for 2002. However, our domestic rental horsepower utilization rate at December 31, 2003 was 76% compared to 72% at December 31, 2002. The increase in utilization was due to an increase in contracted units, which led to a 2% increase in utilization, the retirement of units to be sold or scrapped and the deployment of units into international operations.

For 2003, international rental revenue and gross profit increased, compared to 2002, due to increased compression rental activity, primarily in Argentina and Mexico, and the addition in 2003 of two gas processing plants in Mexico and Brazil. As of December 31, 2003, we had approximately 925,000 horsepower of compression deployed internationally compared to 860,000 horsepower deployed at December 31, 2002.

Our 2003 revenue and gross margin were positively impacted by approximately $2.7 million in revenue that was not recognized until 2003 due to concerns about the ultimate receipt as a result of the strike by workers of the national oil company in Venezuela. Our 2002 international revenue and gross margin benefited from the inclusion of approximately $9.7 million in revenues from partial reimbursement of foreign currency losses from the renegotiations of contracts with our Argentine customers, discussed further below, but was negatively impacted by approximately $2.7 million in revenues from Venezuelan customers that was not recognized until 2003. These items increased our 2002 revenue by approximately $7.0 million and our gross margin by approximately 2%, net. Excluding these items from our 2002 revenues, our 2003 revenues and operating expenses increased by approximately 13% and 17%, respectively. Gross margin for 2003 decreased, when compared to 2002, due primarily to the inclusion of these revenue items in 2002 and an increase in start-up costs in 2003.

For 2003, parts, service, and used equipment revenue was lower than 2002 results due primarily to lower used rental equipment and installation sales. Parts, service and used equipment revenue includes two business components: (1) parts and service and (2) used rental equipment and installation sales. Parts and service revenue was $125.9 million with a gross margin of 29% for 2003, compared to $144.1 million in revenue with a gross margin of 22% in 2002. Parts and service revenue declined by approximately $18.2 million due to weaker market conditions. Used rental equipment and installation sales revenue was $43.1 million with a gross margin of 14% compared to $79.8 million with a gross margin of 16% in 2002. The decrease in used rental equipment and installation sales was primarily due to a large gas plant sale transaction that occurred during 2002. Our used rental equipment and installation sales (which usually have a lower margin than our parts and service sales) decreased our parts, service and used equipment gross margin by approximately 4% in 2003 and by 2% in 2002. In addition, the 2002 parts, service, and used equipment gross margin was negatively impacted by approximately 3% due to the $6.8 million inventory write-down and reserves recorded during 2002 for parts, which were either obsolete, excess or carried at a price above market value.

For 2003, compression fabrication revenue and gross margin declined, compared to 2002, due primarily to strong competition for new orders which negatively affected the selling price and the resulting gross margin and sales and operational disruptions associated with the consolidation of our fabrication facilities.

Production and processing equipment revenue for 2003 increased over 2002 revenue because of the inclusion of a full year of revenue from Belleli. Included in 2003 was $116.8 million in revenue and $105.3 million in expense for Belleli, compared to $15.4 million in revenue and $13.7 million in expense in 2002. In November 2002, we increased our ownership percentage of Belleli to 51% and began including Belleli in our consolidated financial results. Gross margin for production and processing equipment fabrication declined, compared to the same period a year earlier, due primarily to increased competition for our high specification equipment lines, cost overruns on certain projects that we were not able to pass on

Equity in income of non-consolidated affiliates increased by $4.3 million to $23.1 million during the year ended December 31, 2003, from $18.8 million during the year ended December 31, 2002. This increase is primarily due to a improvement in results from our equity interest in Hanover Measurement and PIGAP II joint venture. During 2002, Hanover Measurement had recorded a goodwill impairment charge and PIGAP II results were negatively impacted by foreign exchange losses.

Selling, general, and administrative expense (“SG&A”) for both 2003 and 2002, as a percentage of revenue, was 15%. SG&A expense in 2003 was $161.7 million compared to $153.7 million in 2002. The increase over 2002 was primarily due to the inclusion of Belleli’s SG&A expense of $11.0 million, compared to $1.2 million in 2002.

Depreciation and amortization expense for 2003 was $172.6 million, compared to $151.2 million in 2002. The increase in depreciation and amortization was primarily due to: (1) additions to the rental fleet, including maintenance capital, placed in service during the year; (2) the inclusion of $3.0 million of depreciation and amortization from the inclusion of Belleli for a full year; (3) $14.3 million of impairments recorded for idle rental fleet assets to be sold or scrapped; (4) approximately $8.5 million in additional depreciation expense associated with the compression equipment operating leases that were consolidated into our financial statements in the third quarter of 2003; and (5) $2.5 million in amortization to write-off deferred financing costs associated with the our old bank credit facility and compression equipment lease obligations that were refinanced in December 2003. Depreciation and amortization expense for 2002 included $34.5 million in impairment charges for the reduction in the carrying value of certain idle compression equipment that was retired and the acceleration of depreciation related to certain plants and facilities that were expected to be sold or abandoned. After a review of our idle rental fleet assets in 2002 and 2003, we determined that certain assets should be scrapped or sold rather than repaired. A number of these units were acquired in business acquisitions over the last several years and given our utilization level, we determined not to repair or rebuild them to bring them up to Hanover’s standards.

Beginning in July 2003, payments accrued under our sale leaseback transactions are included in interest expense as a result of consolidating the entities that lease compression equipment to us. See “— Cumulative Effect Of Accounting Change” below. As a result of this, our interest expense increased $45.8 million, to $89.2 million, and our leasing expense decreased $46.9 million to $43.1 million for the year ended December 31, 2003.

Our interest and leasing expense increased due to the increase in the outstanding balance of our zero coupon note, the inclusion of approximately $1.5 million in interest expense from Belleli and higher effective rates as a result of the February 2003 amendment to our bank credit facility and compression equipment operating leases. These increases were offset by lower interest on our bank credit facility as a result of lower balances outstanding and by a decrease in additional interest paid on leases, explained below.

In connection with the compression equipment leases entered into in August 2001, we were obligated to prepare registration statements and complete an exchange offer to enable the holders of the notes issued by the lessors to exchange their notes with notes registered under the Securities Act of 1933. Because of the restatement of our financial statements, the exchange offer was not completed pursuant to the time line required by the agreements related to the compression equipment lease obligations and we were required to pay additional lease expense in an amount equal to $105,600 per week until the exchange offering was completed. The additional lease expense began accruing on January 28, 2002 and increased our lease expense by $1.1 million and $5.1 million during 2003 and 2002, respectively. The registration

Foreign currency translation expense for the year ended December 31, 2003 was $2.5 million, compared to a $16.8 million for the year ended December 31, 2002. In January 2002, Argentina devalued its peso against the U.S. dollar and imposed significant restrictions on fund transfers internally and outside the country. In addition, the Argentine government enacted regulations to temporarily prohibit enforcement of contracts with exchange rate-based purchase price adjustments. Instead, payment under such contracts could either be made at an exchange rate negotiated by the parties or, if no such agreement were reached, a preliminary payment could be made based on a one dollar to one peso equivalent pending a final agreement. The Argentine government also required the parties to such contracts to renegotiate the price terms within 180 business days of the devaluation. We have renegotiated all of our agreements in Argentina. As a result of these negotiations, we received approximately $11.2 million in reimbursements in 2002 and $0.7 million in 2003. During the years ended December 31, 2003 and 2002, we recorded an exchange gain of approximately $0.5 million and an exchange loss of approximately $9.9 million, respectively, for assets exposed to currency translation in Argentina.

Other expenses decreased by $24.7 million to $2.9 million during the year ended December 31, 2003 from $27.6 million for the year ended December 31, 2002. For the year ended December 31, 2003, other expenses included $2.9 million in charges primarily recorded to write-off certain non-revenue producing assets and to record the settlement of a contractual obligation. For the year ended December 31, 2002, other expenses included $15.9 million of write-downs and charges related to investments in four non-consolidated affiliates that had experienced a decline in value that we believed to be other than temporary, a $0.5 million write-off of a purchase option for an acquisition that we had abandoned, $2.7 million in other non-operating costs and a $8.5 million write-down of notes receivable, including a $6.0 million reserve established for loans to employees who were not executive officers.

During 2003, we recorded a $35.5 million non-cash charge for goodwill impairment associated with Belleli. As a result of the war in Iraq, the strengthening of the Euro and generally unfavorable economic conditions, we believe that the estimated fair value of Belleli declined significantly during 2003. Upon gaining complete control of Belleli and assessing our long-term growth strategy, we determined that these general factors in combination with the specific economic factors impacting Belleli had significantly and adversely impacted the timing and amount of the future cash flows that we expected Belleli to generate. We currently do not expect to realize our original growth expectations for Belleli in the timeframe that we originally forecasted.

In the fourth quarter 2002, we recorded a $4.6 million goodwill impairment charge related to the write-down of the goodwill associated with our pump division. In addition, in the second quarter 2002, we recorded a $47.5 million goodwill impairment charge on the goodwill associated with our production and processing equipment fabrication business.

Hanover and certain of its past and present officers and directors are named as defendants in a consolidated action pending in federal court that includes a putative securities class action, a putative class action arising under the Employee Retirement Income Security Act (“ERISA”) and shareholder derivative actions. The litigation relates principally to the matters involved in the transactions underlying the restatements of our financial statements. The plaintiffs allege, among other things, that we and the other defendants acted unlawfully and fraudulently in connection with those transactions and our original disclosures related to those transactions and thereby violated the antifraud provisions of the federal securities laws and the other defendants’ fiduciary duties to Hanover.

GKH, which, as of December 31, 2003, owned approximately 10% of Hanover’s outstanding common stock and which sold shares in our March 2001 secondary offering of common stock, are parties to the settlement and have agreed to settle claims against them that arise out of that offering as well as other potential securities, ERISA, and derivative claims. The terms of the settlement provide for GKH to transfer 2.5 million shares of Hanover common stock from their holdings or from other sources to the settlement fund.

On October 24, 2003, the parties moved the United States District Court for the Southern District of Texas for preliminary approval of the proposed settlement and sought permission to provide notice to the potentially affected persons and to set a date for a final hearing to approve the proposed settlement. On December 5, 2003, the court held a hearing and granted the parties’ motion for preliminary approval of the proposed settlement and, among other things, ordered that notice be provided to appropriate persons and set the date for the final hearing. The final hearing was held on February 6, 2004, and no objections to the settlement or requests to be excluded from the terms of the settlement had been received prior to the deadline set by the court.

On February 9, 2004, the United States District Court for the Southern District of Texas entered three Orders and Final Judgments, approving the settlement on the terms agreed upon in the Stipulation of Settlement with respect to all of the claims described above. The court also entered an Order and Final Judgment approving the plans of allocation with respect to each action, as well as an Order and Final Judgment approving the schedule of attorneys’ fees for counsel for the settling plaintiffs. The time in which these Orders and Final Judgments may be appealed expired on March 10, 2004 without any appeal being lodged. The settlement has therefore become final and will be implemented according to its terms. In March 2004, we issued and delivered to the escrow agent for the settlement fund 2.5 million shares of Hanover common stock, as required by the settlement. Our independent auditor, PricewaterhouseCoopers, is not a party to the settlement and remains a party to the securities class action.

Based on the terms of the settlement agreement and the individual components of the settlement, we recorded the cost of the litigation settlement. The details of the litigation settlement charge were as follows (in thousands):

The provision for income taxes increased $18.4 million, to $0.8 million during the year ended December 31, 2003 from a benefit of $17.6 million during the year ended December 31, 2002. The average effective income tax rates during the year ended December 31, 2003 and December 31, 2002 were (0.7%) and 19%, respectively. The decrease in rate was primarily due to a $25.7 million valuation allowance recorded for U.S. deferred tax assets where near-term future realization is uncertain and the non-deductible Belleli goodwill impairment.

As a result of current year operating losses in 2003, we were in a net deferred tax asset position (for U.S. income tax purposes) for the first time in 2003. Due to our cumulative domestic tax losses over the past three years, we could not reach the conclusion that it was “more likely than not” that certain of our U.S. deferred tax assets will be realized in the future. Accordingly, we provided a $25.7 million deferred tax valuation allowance against our net U.S. deferred tax asset. We will be required to record additional valuation allowances if our domestic deferred tax asset position is increased and the “more likely than not” criteria of SFAS 109 is not met. If we are required to record additional valuation allowances, our effective tax rate will be increased, perhaps substantially above the statutory rate.

During the fourth quarter of 2002, we reviewed our business lines and the board of directors approved management’s recommendation to exit and sell our non-oilfield power generation and certain used equipment business lines. Income from discontinued operations increased $2.1 million, to net income of $1.2 million during the year ended December 31, 2003, from a loss of $0.9 million during the year ended December 31, 2002. In 2003, we recorded an additional $14.1 million charge (net of tax) to write-down our investment in discontinued operations to their current estimated market value. During 2002, we recorded a $40.4 million charge (net of tax) related to write-downs of our investment in discontinued operations.

We recorded a cumulative effect of accounting change of $86.9 million, net of tax, related to the partial adoption of FIN 46 on July 1, 2003.

In January 2003, the FASB issued FIN 46. The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved by means other than through voting rights and the determination of when and which business enterprise should consolidate a variable interest entity (“VIE”) in its financial statements. FIN 46 applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. As revised, FIN 46 was effective immediately for VIE’s created after January 31, 2003. For special-purposes entities created prior to February 1, 2003, FIN 46 is effective at the first interim or annual reporting period ending after December 15, 2003, or December 31, 2003 for us. For entities, other than special purpose entities, created prior to February 1, 2003, FIN 46 is effective for us as of March 31, 2004. In addition, FIN 46 allows companies to elect to adopt early the provisions of FIN 46 for some, but not all, of the variable interest entities they own. Because we are still evaluating whether we will be required to make any other potential changes in connection with our adoption of FIN 46, we have not adopted the provisions of FIN 46 other than discussed here and under “Management Discussion and Analysis of Financial Condition — New Accounting Pronouncements” in Item 7 of this Form 10-K.

Prior to July 1, 2003, we had entered into lease transactions that were recorded as a sale and leaseback of the compression equipment and were treated as operating leases for financial reporting purposes. On July 1, 2003, we adopted the provisions of FIN 46 as they relate to the special purpose entities that lease compression equipment to us. As a result of the adoption, we added approximately $1,089 million in compressor equipment assets, $192.3 million of accumulated depreciation (including approximately $58.6 million of accumulated depreciation related to periods before the sale and leaseback of the equipment), $1,105.0 million in debt and $34.6 million in minority interest obligations to our balance sheet, and we reversed $108.8 million of deferred gains that were recorded on our balance sheet as a result of the sale leaseback transactions. On July 1, 2003, we recorded a $133.7 million charge ($86.9 million net of tax) to record the cumulative effect from the adoption of FIN 46 related to prior period depreciation of the compression equipment assets. Additionally, we estimate that we will record approximately $17 million per year in additional depreciation expense on our leased compression equipment as a result of the inclusion of the compression equipment on our balance sheet and will also record the payments made under our compression equipment leases as interest expense.

In December 2003, we exercised our purchase option under the 1999 compression equipment operating lease. As of December 31, 2003, the remaining compression assets owned by the entities that lease equipment to us but are now included in property, plant and equipment in our consolidated financial statements had a net book value of approximately $804.0 million, including improvements made to these assets after the sale leaseback transactions.

Our total revenues decreased by $12.2 million to $1,028.8 million during the year ended December 31, 2002 from $1,041.0 million during 2001, as declining revenues in our fabrication businesses more than offset increases in revenues from our domestic and international rental revenues.

Revenues from rentals increased by $117.5 million, or 29%, to $518.3 million during 2002 from $400.8 million during 2001. The increase in both domestic and international rental revenues resulted from expansion of our rental fleet and business acquisitions completed in 2001. During 2001, we completed two significant acquisitions: (1) in March 2001 we acquired OEC Compression Corporation, which increased

our rental fleet by approximately 175,000 horsepower, and (2) in August 2001 we acquired Production Operators Corporation, which increased our rental fleet by approximately 860,000 horsepower. At December 31, 2002, the compressor rental fleet consisted of approximately 3,514,000 horsepower, a 1% increase over the 3,477,000 horsepower in the rental fleet at December 31, 2001.

Net income decreased $188.5 million, or 260%, to a net loss of $116.1 million during 2002 from net income of $72.4 million during 2001 primarily due to (1) the decline in market conditions which impacted our compressor and accessory fabrication and production and processing equipment sales and gross profits, (2) an inventory write-down, (3) a charge included in depreciation and amortization expense for reductions in the carrying value of certain idle units of our compression fleet that are being retired and the acceleration of depreciation related to certain plants and facilities expected to be sold or abandoned, (4) an increase in selling, general and administrative expenses, depreciation expense, leasing expense, foreign currency translation expense and interest expense, (5) a goodwill impairment and (6) a charge to write-down investments in discontinued operations to their estimated fair market values.

Included in the net loss for 2002 were the following pre-tax charges (in thousands):

The increase in domestic rental revenues and expenses for the year 2002 over the year 2001 were primarily the result of the expansion of our rental fleet and acquisitions. The increase in revenues was more than offset by higher operating expenses creating a decrease in the gross margin of approximately 2% for the year 2002 compared to 2001. The higher operating expenses were primarily due to lower horsepower utilization brought on by weaker domestic market conditions without a decrease in overhead. Domestic horsepower decreased by 2% to approximately 2,654,000 horsepower at December 31, 2002 from approximately 2,696,000 horsepower at December 31, 2001. Domestic horsepower utilization rate at December 31, 2002 was 72% compared to 80% at December 31, 2001.

The increase in international rentals resulted from the expansion of our rental fleet and business acquisitions completed in 2001. International horsepower increased by 10% to approximately 860,000 horsepower at December 31, 2002 from approximately 781,000 horsepower at December 31, 2001. The increase in revenues was offset in part by decreased revenues from our Venezuelan operations. In December 2002, certain opposition groups in Venezuela initiated an unofficial national strike. This caused economic conditions in Venezuela to deteriorate, including a substantial reduction in the production of oil in Venezuela. As a result, during the fourth quarter of 2002, our international rental revenues were decreased by approximately $2.7 million as a result of the disruption in our operations in Venezuela. However, our 2002 international gross margin benefited from approximately $9.7 million in partial reimbursement of foreign currency losses from the renegotiations of contracts with our Argentine customers, discussed further below, but was negatively impacted by approximately $2.7 million in revenues from Venezuelan customers that was not recognized until 2003. We estimate that these items increased our 2002 gross margin by approximately 2%.

International horsepower utilization rate at December 31, 2002 was 96% compared to 97% at December 31, 2001.

The increase in revenues from parts, service and used equipment was due to a $26.5 million gas plant sale transaction and a $20.1 million compression equipment sale transaction offset by lower revenues as a result of weaker market conditions.

The increase in operating expenses of our parts, service and used equipment segment and the decrease in the gross profit margin from parts, service and used equipment was primarily due to lower profit margins on used equipment sales in 2002 compared to used equipment sales in 2001. In 2002, parts and service revenue included $62.4 million in used equipment sales at a 13% gross margin, compared to $28.0 million in 2001, with a 31% gross margin. Approximately four percentage points of the decrease in gross margin for parts, service and used equipment was due to a low margin gas plant sale transaction and a low margin compressor sale transaction. In addition, approximately three percentage points of the decrease in gross margin was due to $6.8 million in inventory write-downs and reserves for parts that were either obsolete, excess or carried at a price above market value. The remainder of the decrease was primarily due to the impact of weaker market conditions on sales volume and margins.

Revenues, operating expenses and gross profit from the compressor and accessory fabrication segment decreased due to weaker market conditions. During 2002, an aggregate of approximately 150,900 horsepower of compression equipment was fabricated and sold compared to approximately 366,000 horsepower fabricated and sold during 2001. The decrease in gross profit margin for compression and accessory fabrication was attributable to lower sales levels without a corresponding decrease in overhead and the impact of weaker market conditions on sales margins.

Production and processing equipment revenues include $15.4 million in revenues from the consolidation of Belleli since November 2002. In November 2002, we increased our ownership in Belleli to 51% and began consolidating the results of Belleli’s operations. Excluding Belleli, revenues from our fabrication businesses declined by 27% due to decreased capital spending by our customers in 2002 caused by weak economic market conditions and recent political and economic events in South America resulting in lower drilling and new well completion activity by oil and gas producers. The average North and South American rig count decreased by 27% in 2002 to 1,097 from 1,497 in 2001 and the twelve-month rolling average Henry Hub natural gas price decreased to $3.22 per Mcf in December 2002 from $4.26 per Mcf in December 2001.

Production and processing equipment fabrication operating expenses and gross profit decreased due to lower sales levels. The decrease in gross profit margin for production and processing equipment fabrication was attributable to lower sales levels without a corresponding decrease in overhead and the impact of weaker market conditions on sales margins.

Equity in earnings in subsidiaries increased $9.4 million, or 101%, to $18.8 million during 2002, from $9.4 million during 2001. This increase is primarily due to our acquisition of POC, which included interests in three joint venture projects in South America. These joint ventures contributed $21.7 million in equity earnings for 2002 compared to $8.1 million in 2001 and was partially offset by a decrease in equity earnings from Hanover Measurement Services Company LP which decreased to a loss of $2.2 million in 2002 from $0.8 million in income in 2001.

SG&A expenses increased $61.5 million, or 67%, to $153.7 million in 2002 from $92.2 million in 2001. The increase was attributable to increased personnel and other selling and administrative activity in our business segments resulting from the acquisitions completed during 2001. We also recorded $3.8 million in employee separation costs relating to our announced reduction in our work force and

management changes and approximately $11.6 million in additional legal and accounting costs, a significant portion of which was associated with our board of directors and Special Litigation Committee review of certain transactions, the restatement of our financial results and the SEC investigation.

Depreciation and amortization increased by $62.4 million, or 70%, to $151.2 million during 2002 compared to $88.8 million during 2001. During 2002 we recorded a $34.5 million charge included in depreciation and amortization expense for reductions in the carrying value of certain idle compression equipment that is being retired and the acceleration of depreciation related to certain plants and facilities expected to be sold or abandoned. The remaining increase in depreciation was due to the additions to the rental fleet, partially offset by the change in estimated lives of certain compressors. After a review of the estimated economic lives of our compression fleet, on July 1, 2001 we changed our estimate of the useful life of certain compression equipment to range from 15 to 30 years instead of a uniform 15-year depreciable life. Our new estimated lives are based upon our experience, maintenance program and the different types of compressors presently in our rental fleet. We believe our new estimate reflects the economic useful lives of the compressors more accurately than a uniform useful life applied to all compressors regardless of their age or performance characteristics. The effect of this change in estimate on 2002 was a decrease in depreciation expense of approximately $14.4 million and an increase in net income of approximately $8.6 million ($0.11 per share).

In addition, because we sold compressors in sale leaseback transactions in August 2001, depreciation expense was reduced by approximately $36 million in 2002 compared to approximately $43 million in 2001. The decrease in depreciation in 2002 from 2001 was due to our change in estimate of useful lives of our compressors on July 1, 2001 as discussed above.

The increase in depreciation was also offset by the decrease in goodwill amortization due to our adoption of SFAS 142. Under SFAS 142, amortization of goodwill over an estimated useful life was discontinued. Instead, goodwill amounts became subject to a fair value-based annual impairment assessment. During 2001, approximately $10.1 million in goodwill amortization was recorded.

We incurred leasing expense of $90.1 million during 2002 compared to $78.0 million during 2001. The increase of $12.1 million was attributable to the sale leaseback transactions we entered into in August 2001 and was partially offset by the unrealized gains and losses recorded related to two of our interest rate swaps. In connection with these leases, we were obligated to prepare registration statements and complete an exchange offer to enable the holders of the notes issued by the lessors to exchange their notes for notes that were registered under the Securities Act of 1933. Because the exchange offer was not completed until March 13, 2003, we were required to pay additional leasing expense in the amount of approximately $105,600 per week until March 13, 2003. The additional leasing expense began accruing on January 28, 2002. In 2002, we recorded additional leasing expense of approximately $5.1 million related to the registration and exchange offering obligations.

The fair value of our derivative instruments (interest rate swaps) increased by $3.2 million during 2002 while the fair value decreased by $7.6 million in 2001. These changes in fair value were due to the recognition of an unrealized change in the fair value of our interest rate swaps that we had not designated as cash flow hedges under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” The unrealized gains and losses are reflected in our leasing expense.

Interest expense increased by $19.5 million to $43.4 million during 2002 from $23.9 million during 2001. The increase in interest expense was due to higher levels of outstanding debt partially offset by lower effective interest rates.

Foreign currency translation expense increased by $10.1 million, or 152%, to $16.8 million during 2002 compared to $6.7 million during 2001. The increase was primarily due to our operations in Argentina and Venezuela. In January 2002, Argentina devalued its peso against the U.S. dollar and imposed significant restrictions on funds transfers internally and outside the country. In addition, the Argentine government enacted regulations to temporarily prohibit enforcement of contracts with exchange rate-based purchase price adjustments. Instead, payment under such contracts could either be made at an exchange

rate negotiated by the parties or, if no such agreement was reached, a preliminary payment could be made based on a one dollar to one peso equivalent pending a final agreement. The Argentine government also required the parties to such contracts to renegotiate the price terms within 180 days of the devaluation. We have renegotiated all of our agreements in Argentina. As a result of these negotiations, we received approximately $11.2 million in partial reimbursements in 2002. We recorded $1.5 million of these partial reimbursements in translation expense and $9.7 million in revenues from international rentals. During 2002, we recorded an exchange loss of approximately $9.9 million and $5.8 million for assets exposed to currency translation in Argentina and Venezuela, respectively, and recorded a translation loss of approximately $1.1 million for all other countries.

Due to a downturn in our business and changes in the business environment in which we operate, we completed a goodwill impairment analysis as of June 30, 2002. As a result of the test performed as of June 30, 2002, we recorded an estimated $47.5 million impairment of goodwill attributable to our production and processing equipment fabrication business in the second quarter of 2002. We estimated the fair value of our reporting units using a combination of the expected present value of future cash flows and the market approach, which uses actual market sales. In the fourth quarter of 2002, we also recorded a $4.6 million goodwill impairment related to our pump division, which is expected to be sold.

Other expenses increased $17.9 million, or 184%, to $27.6 million during 2002 compared to $9.7 million during 2001. Other expenses in 2002 included $15.9 million of write-downs and charges related to investments in four non-consolidated affiliates that had experienced a decline in value that we believed to be other than temporary, a $0.5 million write-off of a purchase option for an acquisition that we had abandoned, $2.7 million in other non-operating costs and a $8.5 million write-down of notes receivable, including a $6.0 million reserve established for loans to employees who were not executive officers. Other expenses in 2001 included a $2.7 million bridge loan commitment fee associated with our acquisition of POC, a $5.0 million write-down of an investment in Aurion Technologies, Inc., a $1.0 million litigation settlement and $1.0 million in other non-operating expenses.

The provision for income taxes decreased by $60.0 million, or 141%, to a tax benefit of $17.6 million during 2002 from $42.4 million of tax expense during 2001. The decrease resulted primarily from the corresponding decrease in income before income taxes. The average effective income tax rates during 2002 and 2001 were 19.0% and 37.8%, respectively. The decrease in the effective tax rate was due primarily to a nondeductible goodwill impairment charge, U.S. impact of foreign operations, and valuation allowances against certain net operating losses. The effective tax rate benefited from non-U.S. foreign exchange losses deductible for tax in excess of book losses.

During the fourth quarter of 2002, we reviewed our business lines and the board of directors approved management’s recommendation to exit and sell our non-oilfield power generation and certain used equipment business lines. During 2002, we recorded a $40.4 million charge (net of tax) to write-down our investment in discontinued operations to current estimated fair market values. Discontinued operations include three non-oilfield power generation projects in California and related inventory, and certain of our used equipment divisions.

Income (loss) from discontinued operations decreased $3.9 million, or 130%, to a net loss of $0.9 million during 2002 from net income of $3.0 million during 2001. The decrease in net income was primarily attributable to weaker market conditions that impacted sales volume and gross margins.

As of December 2003, we are the lessee in four transactions involving the sale of compression equipment by us to special purpose entities, which in turn lease the equipment back to us. At the time we entered into the leases, these transactions had a number of advantages over other sources of capital then

In August 2001 and in connection with the acquisition of POC, we completed two sale leaseback transactions involving certain compression equipment. Under one sale leaseback transaction, we received $309.3 million in proceeds from the sale of certain compression equipment. Under the second sale leaseback transaction, we received $257.8 million in proceeds from the sale of additional compression equipment. Under the first transaction, the equipment was sold and leased back by us for a seven-year period and will continue to be deployed by us in the normal course of our business. The agreement calls for semi-annual rental payments of approximately $12.8 million in addition to quarterly rental payments of approximately $0.2 million. Under the second transaction, the equipment was sold and leased back by us for a ten-year period and will continue to be deployed by us in the normal course of our business. The agreement calls for semi-annual rental payments of approximately $10.9 million in addition to quarterly rental payments of approximately $0.2 million. We have options to repurchase the equipment under certain conditions as defined by the lease agreements. Through December 31, 2003, we incurred transaction costs of approximately $18.6 million related to these transactions. These costs are included in intangible and other assets and are being amortized over the respective lease terms.

In October 2000, we completed a $172.6 million sale leaseback transaction of compression equipment. In March 2000, we entered into a separate $200 million sale leaseback transaction of compression equipment. Under the March transaction, we received proceeds of $100 million from the sale of compression equipment at the first closing in March 2000, and in August 2000, we completed the second half of the equipment lease and received an additional $100 million for the sale of additional compression equipment. Under our 2000 lease agreements, the equipment was sold and leased back by us for a five-year term and will be used by us in our business. We have options to repurchase the equipment under the 2000 leases, subject to certain conditions set forth in these lease agreements. The 2000 lease agreements call for variable quarterly payments that fluctuate with the London Interbank Offering Rate and have covenant restrictions similar to our bank credit facility. We incurred an aggregate of approximately $7.1 million in transaction costs for the leases entered into in 2000, which are included in intangible and other assets on the balance sheet and are being amortized over the respective lease terms of the respective transactions.

The following table summarizes, as of December 31, 2003, the proceeds, residual guarantee, lease termination date and minority interest obligations for our equipment leases (in thousands):

The lease facilities contain certain financial covenants and limitations which restrict us with respect to, among other things, indebtedness, liens, leases and sale of assets. We are entitled under the compression equipment operating lease agreements to substitute equipment that we own for equipment owned by the special purpose entities, provided that the value of the equipment that we are substituting is equal to or greater than the value of the equipment that is being substituted. Each lease agreement limits the aggregate amount of replacement equipment that may be substituted to under each lease.

equipment), $1,105.0 million in debt and $34.6 million in minority interest obligations to our balance sheet, and we reversed $108.8 million of deferred gains that were recorded on our balance sheet as a result of the sale leaseback transactions. On July 1, 2003, we recorded a $133.7 million charge ($86.9 million net of tax) to record the cumulative effect from the adoption of FIN 46 related to prior period depreciation of the compression equipment assets. Additionally, we estimate that we will record approximately $17 million per year in additional depreciation expense on our leased compression equipment as a result of the inclusion of the compression equipment on our balance sheet and will also record the payments made under our compression equipment leases as interest expense.

In December 2003 we exercised our purchase option under the 1999 compression equipment operating lease. As of December 31, 2003, the remaining compression assets owned by the entities that lease equipment to us but are now included in property, plant and equipment in our consolidated financial statements had a net book value of approximately $804.0 million, including improvements made to these assets after the sale leaseback transactions.

The minority interest obligations represent the equity of the entities that lease compression equipment to us. In accordance with the provisions of our compression equipment lease obligations, the equity certificate holders are entitled to quarterly or semi-annual yield payments on the aggregate outstanding equity certificates. As of December 31, 2003, the yield rates on the outstanding equity certificates ranged from 4.4% to 9.5%. Equity certificate holders may receive a return of capital payment upon lease termination or our purchase of the leased compression equipment after full payment of all debt obligations of the entities that lease compression equipment to us. At December 31, 2003, the carrying value of the minority interest obligations approximated the fair market value of assets that would be required to be transferred to redeem the minority interest obligations

In connection with the compression equipment leases entered into in August 2001, we were obligated to prepare registration statements and complete an exchange offer to enable the holders of the notes issued by the lessors to exchange their notes with notes registered under the Securities Act of 1933. Because of the restatement of our financial statements, the exchange offer was not completed within the time frame required by the agreements related to the compression equipment lease obligations and we were required to pay additional lease expense in an amount equal to $105,600 per week until the exchange offering was completed. The additional lease expense began accruing on January 28, 2002 and increased our lease expense by $1.1 million and $5.1 million during 2003 and 2002, respectively. The registration statements became effective in February 2003. The exchange offer was completed and the requirement to pay the additional lease expense ended on March 13, 2003.

In February 2003, in connection with an amendment to our bank credit facility and, in December 2003, in connection with the closing on our new bank credit facility we executed conforming amendments to the compression equipment leases entered into in 2000. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Item 7 of this Form 10-K.

Our unrestricted cash balance amounted to $56.6 million at December 31, 2003 compared to $19.0 million at December 31, 2002. Working capital increased to $255.2 million at December 31, 2003 from $195.4 million at December 31, 2002. The increase in working capital was primarily due to modification and subsequent payment of a $58.0 million obligation associated with the PIGAP II joint venture that was accrued as a contingent liability on our balance sheet since the acquisition of POC. The obligation was converted into the PIGAP Note with a 6% interest rate compounding semi-annually until maturity in December 2053. In October 2003, the PIGAP II joint venture closed on the project’s financing and distributed approximately $78.5 million to Hanover, of which approximately $59.9 million was used to pay off the PIGAP Note.

Our cash flow from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flow, are summarized in the table below (dollars in thousands):

The decrease in net cash provided by operating activities for the year ended December 31, 2003 as compared to the year ended December 31, 2002 was primarily due to the reduction in net income discussed above.

The decrease in cash used in investing activities during the year ended December 31, 2003 as compared to the year ended December 31, 2002 was primarily attributable to a decrease in capital expenditures and the return of some of our investment in PIGAP II as a result of the financing discussed above. We are seeking to deploy our capital more effectively in order to improve our returns from our investments, and we decreased our capital expenditures in the year ended December 31, 2003 by $107.7 million from the year ended December 31, 2002. We invested $142.5 million in property plant and equipment during the year ended December 31, 2003, primarily for international rental projects and maintenance capital.

The increase in cash used in financing activities was primarily due to the repayment of the PIGAP Note from the cash distributed from the financing discussed above.

The increase in cash provided by discontinued operations was related to the proceeds from the sale of Gates and Panoche which were approximately $27.2 million.

We may carry out new customer projects through rental fleet additions and other related capital expenditures. We generally invest funds necessary to make these rental fleet additions when our idle equipment cannot economically fulfill a project’s requirements and the new equipment expenditure is matched with long-term contracts whose expected economic terms exceed our return on capital targets. During 2004, we plan to spend approximately $100 to $150 million on capital expenditures including (1) rental equipment fleet additions and (2) approximately $50 to $60 million on equipment maintenance capital. Since capital expenditures are largely discretionary, we believe we would be able to significantly reduce them, in a reasonably short time frame, if expected cash flows from operations were not realized.

As a result of our agreement to settle the securities-related litigation, we expect to incur approximately $2.5 million in additional legal fees and administrative costs over the next 12 months in addition to the amount held in escrow and reported as restricted cash on our condensed consolidated balance sheet. Historically, we have funded our capital requirements with a combination of internally generated cash flow, borrowings under a bank credit facility, sale leaseback transactions, raising additional equity and issuing long-term debt.

The following summarizes our cash contractual obligations at December 31, 2003 and the effect such obligations are expected to have on our liquidity and cash flow in future periods:


(1)	Amount represents $262.6 million zero coupon note. Balance payable at December 31, 2003, including 11% discount per annum, was $185.5 million.

(2)	Represents third party equity interest of lease equipment trusts that was required to be consolidated into our financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Leasing Transactions and Accounting Change for FIN 46” in Item 7 of this Form 10-K.

As part of our business, we are a party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. To varying degrees, these guarantees involve elements of performance and credit risk, which are not included on our consolidated balance sheet or reflected in the table above. The possibility of our having to honor our contingencies is largely dependent upon future operations of various subsidiaries, investees and other third parties, or the occurrence of certain future events. We would record a reserve for these guarantees if events occurred that required that one be established.

Debt Refinancing. In June 2003, we filed a shelf registration statement with the SEC pursuant to which we may from time to time publicly offer equity, debt or other securities in an aggregate amount not to exceed $700 million. The SEC subsequently declared the shelf registration statement effective on November 19, 2003. Subject to market conditions, the remaining shelf registration statement will be available to offer one or more series of additional debt or other securities.

In December 2003, we issued under our shelf registration statement $200.0 million aggregate principal amount of our 8.625% Senior Notes due 2010, which are fully and unconditionally guaranteed on a senior subordinated basis by HCLP. The proceeds from this offering were used to repay the outstanding indebtedness and minority interest obligations of $194.0 million and $6.0 million, respectively, under our 1999A equipment lease that was to expire in June 2004.

Also in December 2003, we issued under our shelf registration statement $143.8 million aggregate principal amount of our 4.75% Convertible Senior Notes due 2014. We may redeem these convertible notes beginning in 2011 under certain circumstances. The convertible notes are convertible into shares of our common stock at an initial conversion rate of 66.6667 shares of our common stock per $1,000 principal amount of the convertible notes (subject to adjustment in certain events) at any time prior to the stated maturity of the convertible notes or the redemption or repurchase of the convertible notes by us. The proceeds from this offering were used to repay a portion of the outstanding indebtedness under our bank credit facility.

New Bank Credit Facility. Effective December 15, 2003, we entered into a new $350 million bank credit facility with a maturity date of December 29, 2006 and made conforming amendments related to the compression equipment lease obligations that we entered into in 2000. Our prior $350 million bank credit facility that was scheduled to mature in November 2004 was terminated upon closing of the new facility. The new bank credit facility, modified certain covenants that were contained in the prior facility and eliminated certain covenants entirely. The new agreement prohibits us (without the lenders’ prior approval) from declaring or paying any dividend (other than dividends payable solely in our common stock or in options, warrants or rights to purchase such common stock) on, or making similar payments with respect to, our capital stock. The new agreement clarifies and provides certain thresholds with respect to our ability to make investments in our foreign subsidiaries. In addition, under the new agreement we granted the lenders a security interest in the inventory, equipment and certain other property of Hanover and its domestic subsidiaries (with certain exceptions), and pledged 66% of the equity interest in certain of our foreign subsidiaries. We believe that this new bank credit facility will provide flexibility in accessing the capacity under the facility to support our short-term liquidity needs.

Our new bank credit facility provides for a $350 million revolving credit facility in which advances bear interest at (a) the greater of the administrative agent’s prime rate, the federal funds effective rate, or the base CD rate, or (b) a eurodollar rate, plus, in each case, a specified margin (4.2% weighted average interest rate at December 31, 2003). A commitment fee equal to 0.625% times the average daily amount of the available commitment under the bank credit facility is payable quarterly to the lenders participating in the bank credit facility. Our bank credit facility contains certain financial covenants and limitations on, among other things, indebtedness, liens, leases and sales of assets.

As of December 31, 2003, we were in compliance with all material covenants and other requirements set forth in our bank credit facility, agreements related to our compression equipment lease obligations and indentures. Giving effect to the covenant limitations in our bank credit facility, the liquidity available under that facility as of December 31, 2003 was approximately $223 million. While there is no assurance, we believe based on our current projections for 2004 that we will be in compliance with the financial covenants in our bank credit facility and the agreements related to our compression equipment lease obligations. A default under our bank credit facility or these agreements would trigger cross-default provisions under the agreements relating to certain of our other debt obligations. Such defaults would have a material adverse effect on our liquidity, financial position and operations.

We expect that our new bank credit facility and cash flow from operations will provide us adequate capital resources to fund our estimated level of capital expenditures for the short term. As of December 31, 2003, we had approximately $27.0 million in borrowings and approximately $77.1 million in letters of credit outstanding under our bank credit facility (4.2% weighted average effective rate at December 31, 2003). Our bank credit facility permits us to incur indebtedness, subject to covenant limitations described above, up to a $350 million credit limit, plus, in addition to certain other indebtedness, an additional (1) $40 million in unsecured indebtedness, (2) $50 million of nonrecourse indebtedness of unqualified subsidiaries, and (3) $25 million of secured purchase money indebtedness.

In addition to purchase money and similar obligations, the indentures and the agreements related to our compression equipment lease obligations for our 2001A and 2001B sale leaseback transactions and our 8.625% Senior Notes due 2010 permit us to incur indebtedness up to the $350 million credit limit under our bank credit facility, plus (1) an additional $75 million in unsecured indebtedness and (2) any additional indebtedness so long as, after incurring such indebtedness, our ratio of the sum of consolidated net income before interest expense, income taxes, depreciation expense, amortization of intangibles, certain other non-cash charges and rental expense to total fixed charges (all as defined and adjusted by the agreements), or our “coverage ratio,” is greater than 2.25 to 1.0 and no default or event of default has occurred or would occur as a consequence of incurring such additional indebtedness and the application of the proceeds thereon. The indentures and agreements related to our compression equipment lease obligations for our 2001A and 2001B sale leaseback transactions define indebtedness to include the present value of our rental obligations under sale leaseback transactions and under facilities similar to our compression equipment operating leases. As of December 31, 2003, Hanover’s coverage ratio was less than

PIGAP II Restructuring and our Zero Coupon Subordinated Notes due March 31, 2007. On May 14, 2003, we entered into an agreement with Schlumberger to terminate our right to put our interest in the PIGAP II joint venture to Schlumberger. As a result, we retained our interest in PIGAP II. We had previously given notice of our intent to exercise the PIGAP put in January 2003. PIGAP II is a joint venture, currently owned 70% by a subsidiary of Williams Companies Inc. and 30% by Hanover, which operates a natural gas compression facility in Venezuela. The natural gas processed by PIGAP II is re-injected into oil reservoirs for enhanced oil recovery.

Also on May 14, 2003, we agreed with Schlumberger Surenco, an affiliate of Schlumberger, to the modification of the repayment terms of a $58.0 million obligation that was accrued as a contingent liability on our balance sheet since the acquisition of POC and was associated with the PIGAP II joint venture. The obligation was converted into the PIGAP Note payable by Hanover Cayman Limited, our indirect wholly-owned consolidated subsidiary, with a 6% interest rate compounding semi-annually until maturity in December 2053. In October 2003, the PIGAP II joint venture closed on the project’s financing and distributed approximately $78.5 million to Hanover, of which approximately $59.9 million was used to repay the PIGAP Note.

In connection with the agreement to terminate our right to put our interest in PIGAP II back to Schlumberger, we also agreed with Schlumberger to restructure the $150 million subordinated note that Schlumberger received from Hanover in August 2001 as part of the purchase price for our acquisition of POC’s natural gas compression business, ownership interest in certain joint venture projects in South America (including PIGAP II), and related assets. As of March 31, 2003, the date from which the interest rate was adjusted, the $150 million subordinated note had an outstanding principal balance of approximately $171 million, including accrued interest. We restructured the $150 million subordinated note as our Zero Coupon Subordinated Notes due March 31, 2007, which notes were issued to Schlumberger and were sold by Schlumberger in a registered public offering in December 2003. Original issue discount accretes under the zero coupon notes at a rate of 11.0% per annum for their remaining life, up to a total principal amount of $262.6 million payable at maturity. The notes will accrue additional interest at a rate of 2.0% per annum upon the occurrence and during the continuance of an event of default under the notes. The notes will also accrue additional interest at a rate of 3.0% per annum if our consolidated leverage ratio, as defined in the indenture governing the notes, exceeds 5.18 to 1.0 as of the end of any two consecutive fiscal quarters. As of December 31, 2003, we estimate that our debt balance could have increased by approximately $53 million in additional indebtedness and not exceeded the 5.18 to 1.0 ratio. Notwithstanding the preceding, in no event will the total additional interest accruing on the notes exceed 3.0% per annum if both of the previously mentioned circumstances occur. The notes also contain a covenant that limits our ability to incur additional indebtedness if our consolidated leverage ratio exceeds 5.6 to 1.0, subject to certain exceptions.

Credit Ratings. As of March 5, 2004, our credit ratings as assigned by Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services (“Standard & Poor’s”) were:


*	Rating is on the Mandatorily Redeemable Convertible Preferred Securities which were issued by Hanover Compressor Capital Trust, our wholly-owned subsidiary. See discussion of the impact of FIN 46 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — New Accounting Pronouncements” under Item 7 of this Form 10-K.

We do not have any credit rating downgrade provisions in our debt agreements or the agreements related to our compression equipment lease obligations that would accelerate their maturity dates. However, a downgrade in our credit rating could materially and adversely affect our ability to renew existing, or obtain access to new, credit facilities in the future and could increase the cost of such facilities. Should this occur, we might seek alternative sources of funding. In addition, our significant leverage puts us at greater risk of default under one or more of our existing debt agreements if we experience an adverse change to our financial condition or results of operations. Our ability to reduce our leverage depends upon market and economic conditions, as well as our ability to execute liquidity-enhancing transactions such as sales of non-core assets or our equity securities.

Derivative Financial Instruments. We use derivative financial instruments to minimize the risks and/or costs associated with financial and global operating activities by managing our exposure to interest rate fluctuation on a portion of our variable rate debt and leasing obligations. We do not use derivative financial instruments for trading or other speculative purposes. The cash flow from hedges is classified in our consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions.

SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS 137, SFAS 138 and SFAS 149, requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings. Prior to 2001, we entered into two interest rate swaps with notional amounts of $75 million and $125 million and strike rates of 5.51% and 5.56%, respectively. These swaps were to expire in July 2001; however, they were extended for an additional two years at the option of the swap counterparty and expired in July 2003. The difference paid or received on the swap transactions was recorded as an accrued liability and recognized in leasing expense in all periods before July 1, 2003, and in interest expense thereafter. Because management decided not to designate the interest rate swaps as hedges at the time they were extended by the counterparty, we recognized unrealized gains of approximately $4.1 million and approximately $3.2 million related to the change in the fair value of these interest rate swaps in lease expense in our statement of operations during the years ended December 31, 2003 and 2002, respectively, and recognized an unrealized gain of approximately $0.5 million in interest expense during 2003. The fair value of these interest rate swaps fluctuated with changes in interest rates over their terms and the fluctuations were recorded in our statement of operations.

During the second quarter of 2001, we entered into three additional interest rate swaps to convert variable lease payments under certain lease arrangements to fixed payments as follows:

These three swaps, which we have designated as cash flow hedging instruments, meet the specific hedge criteria and any changes in their fair values have been recognized in other comprehensive income. During the years ended December 31, 2003 and 2002, we recorded income of approximately $7.9 million and a loss of $13.6 million, respectively, related to these three swaps ($5.1 million and $8.9 million, net of tax) in other comprehensive income. As of December 31, 2003 and December 31, 2002, a total of approximately $11.7 million and $11.5 million, respectively, was recorded in current liabilities and approximately $3.4 million and $11.5 million, respectively, in long-term liabilities with respect to the fair value adjustment related to these three swaps.

The counterparties to the interest rate swap agreements are major international financial institutions. We continually monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us.

During 2003, we entered into forward exchange contracts with a notional value of $10.0 million to mitigate the risk of changes in exchange rates between Euro and the U.S. dollar. These contracts mature during 2004. As of December 31, 2003, a total of approximately $0.6 million was recorded in other current assets and other comprehensive income with respect to the fair value adjustment related to these three contracts.

For the year ended December 31, 2003, our Argentine operations represented approximately 5% of our revenue and 9% of our gross profit. During the years ended December 31, 2003 and 2002, we recorded an exchange gain of approximately $0.5 million and an exchange loss of approximately $9.9 million, respectively, for assets exposed to currency translation in Argentina.

In addition, during the years ended December 31, 2003 and 2002, we recorded exchange losses of approximately $2.4 million and $5.8 million, respectively, for assets exposed to currency translation in Venezuela and recorded translation losses of approximately $0.6 million and $1.1 million, respectively, for all other countries. For the year ended December 31, 2003, our Venezuelan operations represented approximately 11% of our revenue and 18% of our gross profit. At December 31, 2003, we had approximately $23.0 million in accounts receivable related to our Venezuelan operations.

In December 2002, opponents of Venezuelan President Hugo Chávez initiated a country-wide strike by workers of the national oil company in Venezuela. This strike, a two-month walkout, had a significant negative impact on Venezuela’s economy and temporarily shut down a substantial portion of Venezuela’s oil industry. As a result of the strike, Venezuela’s oil production dropped substantially. In addition, exchange controls have been put in place that put limitations on the amount of Venezuelan currency that can be exchanged for foreign currency by businesses operating inside Venezuela. In May 2003, after six months of negotiation, the Organization of the American States brokered an agreement between the Venezuelan government and its opponents. Although the accord does offer the prospect of stabilizing Venezuela’s economy, if another national strike is staged, exchange controls remain in place, or economic and political conditions in Venezuela continue to deteriorate, our results of operations in Venezuela could be materially and adversely affected, which could result in reductions in our net income. As a result of the disruption in our operations in Venezuela, during the fourth quarter of 2002, our international rental revenues decreased by approximately $2.7 million. In the year ended December 31, 2003, we recognized

approximately $2.7 million of billings to Venezuelan customers that were not recognized in 2002 due to concerns about the ultimate receipt of those revenues. In addition, a recent movement to remove President Chávez has resulted in renewed civil strife in Venezuela. If such strife continues or escalates, our results of operations in Venezuela could be further materially and adversely affected.

The economic situation in Argentina and Venezuela is subject to change. To the extent that the situation deteriorates, exchange controls continue in place and the value of the peso and bolivar against the dollar is reduced further, our results of operations in Argentina and Venezuela could be materially and adversely affected which could result in reductions in our net income.

We are involved in a project to build and operate barge-mounted gas compression and gas processing facilities to be stationed in a Nigerian coastal waterway as part of the performance of a contract between an affiliate of The Royal/ Dutch Shell Group (“Shell”) and Global Energy and Refining Ltd. (“Global”), a Nigerian company. We have completed the building of the required barge-mounted facilities. We understand that Global must complete a significant financing for part of the project in the near term or Shell would be able to terminate its contract with Global. Global has orally informed us that they have completed a financing, although it is not clear to us whether the funds raised will be sufficient to perform their obligations under the Shell contract. In light of the political environment in Nigeria, Global’s lack of a successful track record with respect to this project and other factors, there is no assurance that Global will be able to comply with its obligations under the Shell contract. We believe that Global is in default with respect to certain agreements they have with us, as a result of which we believe we have certain termination rights.

We agreed to assume from certain affiliates of Schlumberger the guarantee obligations of indebtedness of the Simco/ Harwat Consortium and of El Furrial, each of which are joint ventures that we acquired interests in pursuant to our acquisition of POC from Schlumberger. Each of these joint ventures are non-consolidated affiliates of Hanover and our guarantee obligations are not recorded on our accompanying balance sheet. Our guarantee obligation is a percentage of the total debt of the non-consolidated affiliate equal to our ownership percentage in such affiliate. We have issued the following guarantees of the indebtedness of our non-consolidated affiliates (in thousands):

Our obligation to perform under the guarantees arises only in the event that our non-consolidated affiliate defaults under the agreements governing the indebtedness. We currently have no reason to believe that either of these non-consolidated affiliates will default on their indebtedness.

Our substantial debt and compression equipment lease commitments could have important consequences. For example, these commitments could:


	•	make it more difficult for us to satisfy our contractual obligations;

	•	increase our vulnerability to general adverse economic and industry conditions;

	•	limit our ability to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

	•	increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are at, and a portion of our compression equipment leasing expense is based upon, variable rates;

	•	limit our flexibility in planning for, or reacting to, changes in our business and our industry;

	•	place us at a disadvantage compared to our competitors that have less debt or fewer operating lease commitments; and

	•	limit our ability to borrow additional funds.

Our ability to make scheduled payments on our compression equipment lease obligations and our other debt, or to refinance our debt and other obligations, will depend on our ability to generate cash in the future. Our ability to generate cash in the future is subject to our operational performance, as well as general economic, financial, competitive, legislative and regulatory conditions, among other factors.

For the year ended December 31, 2003, we incurred interest and leasing expense of $132.3 million related to our debt, including our compression equipment lease obligations.

As of December 31, 2003, we had outstanding borrowings of approximately $27.0 million (4.2% rate at December 31, 2003) and outstanding letters of credit of approximately $77.1 million under our bank credit facility and approximately $223 million of credit capacity remaining (after giving effect to the covenant limitations in our bank credit facility).

Approximately $397.5 million of our debt will mature within two years from December 31, 2003. Our ability to refinance this debt and other financial obligations at a reasonable cost will be affected by the factors discussed herein and by the general market at the time we refinance.

Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our bank credit facility in an amount sufficient to enable us to pay our debt, compression equipment lease obligations, operating lease commitments and other financial obligations, or to fund our other liquidity needs. We cannot be sure that we will be able to refinance any of our debt or our other financial obligations on commercially reasonable terms or at all. Our inability to refinance our debt or our other financial obligations on commercially reasonable terms could materially adversely affect our business.

Our bank credit facility and other debt obligations, including the agreements related to our compression equipment lease obligations, contain, among other things, covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities. These covenants include provisions that restrict our ability to:


	•	incur additional debt or issue guarantees;

	•	create liens on our assets;

	•	engage in mergers, consolidations and dispositions of assets;

	•	enter into additional operating leases;

	•	pay dividends on or redeem capital stock;

	•	enter into derivative transactions;

	•	make certain investments or restricted payments;

	•	make capital expenditures above certain limits;

	•	make investments, loans or advancements to certain of our subsidiaries;

	•	prepay or modify our debt facilities;

	•	enter into transactions with affiliates; or

	•	enter into sale leaseback transactions.

In addition, under our bank credit facility and the agreements related to certain of our compression equipment lease obligations that we entered into in 2000, we have granted the lenders a security interest in our inventory, equipment and certain of our other property and the property of our domestic subsidiaries and pledged 66% of the equity interest in certain of our foreign subsidiaries.

Our bank credit facility also prohibits us (without the lenders’ prior approval) from declaring or paying any dividend (other than dividends payable solely in our common stock or in options, warrants or rights to purchase such common stock) on, or making similar payments with respect to, our capital stock.

Our bank credit facility and other financial obligations and the agreements related to our compression equipment lease obligations require us to maintain financial ratios and tests, which may require that we take action to reduce our debt or act in a manner contrary to our business objectives. Adverse conditions in the oil and gas business or in the United States or global economy or other events related to our business may affect our ability to meet those financial ratios and tests. A breach of any of these covenants or failure to maintain such financial ratios would result in an event of default under our bank credit facility, the agreements related to our compression equipment lease obligations and the agreements relating to our other financial obligations. If such an event of default occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable.

As of March 5, 2004, our credit ratings as assigned by Moody’s and Standard & Poor’s were:


*	Rating is on the Mandatorily Redeemable Convertible Preferred Securities issued by Hanover Compressor Capital Trust, our wholly-owned subsidiary.(See discussion of the impact of FIN 46 in “— New Accounting Pronouncements.”

We experienced rapid growth from 1998 through 2001 primarily as a result of acquisitions, particularly during 2000 and 2001, during which period our total assets increased from approximately $753 million as of December 31, 1999 to approximately $2.3 billion as of December 31, 2001. Our growth exceeded our infrastructure capabilities and strained our internal control environment. During 2002, we announced a series of restatements of transactions that occurred in 1999, 2000 and 2001. These restatements of our financial statements ultimately reduced our initially reported pre-tax income by $3.1 million, or 4.9%, for the year ended December 31, 1999, by $14.5 million, or 15.5%, for the year ended December 31, 2000, and by $0.4 million, or 0.3%, for the year ended December 31, 2001, although certain restatements resulted in a larger percentage adjustment on a quarterly basis.

During 2002, a number of company executives involved directly and indirectly with the transactions underlying the restatements resigned, including our former Chief Executive Officer, Chief Financial Officer and Vice Chairman of our board of directors, Chief Operating Officer and the head of our international operations. During and after 2002, we hired and appointed a new Chief Executive Officer and Chief Financial Officer, hired and appointed our first General Counsel, and hired a new Controller and managers of Human Resources, Financial Reporting and Policy Administration. During 2002, we added three independent directors to our board of directors and elected an independent Chairman of the Board from among the three new directors. In addition, on February 4, 2004 we added two new independent directors to our board of directors.

Under the direction of our board of directors and new management, we have been reviewing and continue to review our internal controls and procedures for financial reporting and have substantially enhanced certain of our controls and procedures. We have begun to implement a new enterprise resource planning system to better integrate our accounting functions, particularly to better integrate acquired companies. We have made personnel changes and hired additional qualified staff in the legal, accounting, finance and human resource areas and are utilizing third parties to assist with certain aspects of our integration. We have hired a third party to perform internal audit functions for us and anticipate hiring internal personnel to perform this function. Our new management has also adopted policies and procedures, including disseminating a new code of conduct applicable to all employees, to better assure compliance with applicable laws, regulations and ethical standards.

Although we have had certain financial reporting problems in recent months that required us, to amend our Form 10-Q for the third quarter of 2003, adjust our income tax provision for the fourth quarter from what we had previously announced and delay the filing of our Form 10-K for 2003, we do not believe these problems resulted from any material deficiency in our internal controls and procedures or financial reporting process. However, we are continuing to implement improvements to our internal controls and procedures. Full implementation of these improvements will be accomplished over a period of time and, unless and until these efforts are successfully completed, we could experience future accounting and financial reporting problems. Accounting and financial reporting problems could result in, among other things, new securities litigation claims being brought against us, future investigations of us by the SEC and possible fines and penalties, including those resulting from a violation of the cease and desist order we entered into with the SEC in December 2003, and a loss of investor confidence which could adversely affect the trading prices of our debt and equity securities and adversely affect our ability to access sources of necessary capital.

We have contracted with Oracle Corporation to assist us with the design and implementation of a new enterprise resource planning system that will support our human resources, accounting, estimating, financial, fleet and job management and customer systems. We are currently implementing this system. The efficient execution of our business is dependent upon the proper functioning of our internal systems. Any significant failure or malfunction of our enterprise resource planning system may result in disruptions of our operations. Our results of operations could be adversely affected if we encounter unforeseen problems with respect to the implementation or operation of this system.

We invested $142.5 million in property plant and equipment during the year ended December 31, 2003, primarily for international rental projects and maintenance capital. During 2004 we plan to spend approximately $100 to $150 million on continued expansion and maintenance of our rental fleet and other businesses, including $50 to $60 million on equipment maintenance capital. The amount of these expenditures may vary depending on conditions in the natural gas industry and the timing and extent of any significant acquisitions we may make.

Historically, we have funded our capital expenditures through internally generated funds, sale leaseback transactions and debt and equity financing. While we believe that cash flow from our operations and borrowings under our existing $350 million bank credit facility will provide us with sufficient cash to fund our planned 2004 capital expenditures, we cannot assure you that these sources will be sufficient. As of December 31, 2003, we had approximately $223 million of credit capacity remaining (after giving effect to the covenant limitations in our bank credit facility) under our bank credit facility (4.2% weighted average effective interest rate at December 31, 2003). Failure to generate sufficient cash flow, together with the absence of alternative sources of capital, could have a material adverse effect on our business, consolidated financial condition, results of operations or cash flows.

We are the lessee in four transactions involving the sale of compression equipment by us to special purpose entities, which in turn lease the equipment back to us. We are entitled under the compression equipment operating lease agreements to substitute equipment that we own for equipment owned by the special purpose entities, provided that the value of the equipment that we are substituting is equal to or greater than the value of the equipment that is being substituted. We generally substitute equipment when one of our lease customers exercises a contractual right or otherwise desires to buy the leased equipment or when fleet equipment owned by the special purpose entities becomes obsolete or is selected by us for transfer to international projects. Each lease agreement limits the aggregate amount of replacement equipment that may be substituted to, among other restrictions, a percentage of the termination value under each lease. The termination value is equal to (1) the aggregate amount of outstanding principal of the corresponding notes issued by the special purpose entity, plus accrued and unpaid interest and (2) the aggregate amount of equity investor contributions to the special purpose entity, plus all accrued amounts due on account of the investor yield and any other amounts owed to such investors in the special purpose entity or to the holders of the notes issued by the special purpose entity or their agents. In the following table, termination value does not include amounts in excess of the aggregate outstanding principal amount of notes and the aggregate outstanding amount of the equity investor contributions, as such amounts are periodically paid as supplemental rent as required by our compression equipment operating leases. The aggregate amount of replacement equipment substituted (in dollars and percentage of termination value), the termination value and the substitution percentage limitation relating to each of our compression equipment operating leases as of December 31, 2003 are as follows:

In the event we reach the substitution limitation prior to a lease termination date, we will not be able to effect any additional substitutions with respect to such lease. This inability to substitute could have a material adverse effect on our business, consolidated financial position, results of operations and cash flows.

Our operations depend upon the levels of activity in natural gas development, production, processing and transportation. In recent years, oil and gas prices and the level of drilling and exploration activity have been extremely volatile. For example, oil and gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil and gas prices or significant instability in energy markets. As a result, the demand for our gas compression and oil and gas production equipment would be adversely affected. Any future significant, prolonged decline in oil and gas prices could have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows.

Erosion of the financial condition of our customers can also adversely affect our business. During times when the oil or natural gas market weakens, the likelihood of the erosion of the financial condition of these customers increases. If and to the extent the financial condition of our customers declines, our customers could seek to preserve capital by canceling or delaying scheduled maintenance of their existing

gas compression and oil and gas production equipment and determining not to purchase new gas compression and oil and gas production equipment. In addition, upon the financial failure of a customer, we could experience a loss associated with the unsecured portion of any of our outstanding accounts receivable.

Recently, due in part to a deterioration in market conditions, we have experienced a decline in revenues and profits. Our business recorded a $208.3 million net loss for the year ended December 31, 2003 and a $116.1 million net loss for the year ended December 31, 2002. Our results for the years ended December 31, 2003 and 2002 have been affected by an increase in selling, general and administrative expenses, depreciation expense, foreign currency translation expense, interest expense, goodwill impairments, asset impairments, write-downs of discontinued operations, the provision for the cost of the litigation settlement and the cumulative effect of an accounting change. If market conditions were to deteriorate, there could be a material decline in our business, consolidated financial condition, results of operations and cash flows.

We operate in many different geographic markets, some of which are outside the United States. Changes in local economic or political conditions, particularly in Latin America or Canada, could have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows. Additional risks inherent in our international business activities include the following:


	•	difficulties in managing international operations;

	•	unexpected changes in regulatory requirements;

	•	tariffs and other trade barriers that may restrict our ability to enter into new markets;

	•	potentially adverse tax consequences;

	•	expropriation of property or restrictions on repatriation of earnings;

	•	difficulties in establishing new international offices and risks inherent in establishing new relationships in foreign countries;

	•	the burden of complying with foreign laws; and

	•	fluctuations in currency exchange rates and the value of the U.S. dollar, particularly with respect to our operations in Argentina and Venezuela.

In addition, our future plans involve expanding our business in international markets where we currently do not conduct business. Our decentralized management structure and the risks inherent in establishing new business ventures, especially in international markets where local customs, laws and business procedures present special challenges, may affect our ability to be successful in these ventures or avoid losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Some of the international markets in which we operate or plan to operate in the future are politically unstable and are subject to occasional civil and community unrest, such as Venezuela and Western Africa. Riots, strikes, the outbreak of war or terrorist attacks in foreign locations could also adversely affect our business. We have not obtained insurance against terrorist attacks and, due to its limited availability and high cost, do not expect to obtain such insurance in the future.

We have substantial operations in Argentina and Venezuela. As a result, adverse political conditions and fluctuations in currency exchange rates in Argentina and Venezuela could materially and adversely affect our business.

In January 2002, Argentina devalued its peso against the U.S. dollar and imposed significant restrictions on fund transfers internally and outside the country. In addition, the Argentine government enacted regulations to temporarily prohibit enforcement of contracts with exchange rate-based purchase price adjustments. Instead, payment under such contracts could either be made at an exchange rate negotiated by the parties or, if no such agreement were reached, a preliminary payment could be made based on a one dollar to one peso equivalent pending a final agreement. The Argentine government also required the parties to such contracts to renegotiate the price terms within 180 business days of the devaluation. We have renegotiated all of our agreements in Argentina. As a result of these negotiations, we received approximately $11.2 million in reimbursements in 2002 and $0.7 million in 2003. For the year ended December 31, 2003, our Argentine operations represented approximately 5% of our revenue and 9% of our gross profit. During the years ended December 31, 2003 and 2002, we recorded an exchange gain of approximately $0.5 million and an exchange loss of approximately $9.9 million, respectively, for assets exposed to currency translation in Argentina. The economic situation in Argentina is subject to change. To the extent that the situation in Argentina deteriorates, exchange controls continue in place and the value of the peso against the dollar is reduced further, our results of operations in Argentina could be materially and adversely affected which could result in reductions in our net income.

In December 2002, opponents of Venezuelan President Hugo Chávez initiated a country-wide strike by workers of the national oil company in Venezuela. This strike, a two-month walkout, had a significant negative impact on Venezuela’s economy and temporarily shut down a substantial portion of Venezuela’s oil industry. As a result of the strike, Venezuela’s oil production dropped substantially. In addition, exchange controls have been put in place which put limitations on the amount of Venezuelan currency that can be exchanged for foreign currency by businesses operating inside Venezuela. In May 2003, after six months of negotiation, the Organization of the American States brokered an agreement between the Venezuelan government and its opponents. Although the accord does offer the prospect of stabilizing Venezuela’s economy, if another national strike is staged, exchange controls remain in place, or economic and political conditions in Venezuela continue to deteriorate, our results of operations in Venezuela could be materially and adversely affected, which could result in reductions in our net income. As a result of the disruption in our operations in Venezuela, during the fourth quarter of 2002, our international rental revenues decreased by approximately $2.7 million. In the year ended December 31, 2003, we recognized approximately $2.7 million of billings to Venezuelan customers that were not recognized in 2002 due to concerns about the ultimate receipt of those revenues. In addition, a recent movement to remove President Chávez has resulted in renewed civil strife in Venezuela. If such strife continues or escalates, our results of operations in Venezuela could be further materially and adversely affected.

In February 2003, the Venezuelan government fixed the exchange rate to 1,600 bolivars for each U.S. dollar. In February 2004, the government devalued the currency by approximately 17%. The impact of the devaluation on our results of operations will depend upon the amount of our assets (primarily working capital) exposed to currency fluctuation in Venezuela in future periods. As of December 31, 2003, we had approximately $6.0 million in net assets exposed to currency fluctuation in Venezuela. Based on these assets, a 10% change in exchange rates would result in a $0.5 million gain or loss in Venezuela.

The length of our compressor leases with customers varies based on operating conditions and customer needs. In most cases, under currently prevailing lease rates, the initial lease terms are not long enough to enable us to fully recoup the average cost of acquiring or fabricating the equipment. We cannot be sure that

a substantial number of our lessees will continue to renew their leases or that we will be able to re-lease the equipment to new customers or that any renewals or re-leases will be at comparable lease rates. The inability to renew or re-lease a substantial portion of our compressor rental fleet would have a material adverse effect upon our business, consolidated financial condition, results of operations and cash flows.

We experience competition from companies that may be able to adapt more quickly to technological and other changes within our industry and throughout the economy as a whole, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies. We also may not be able to take advantage of certain opportunities or make certain investments because of our significant leverage and the restrictive covenants in our bank credit facility, the agreements related to our compression equipment lease obligations and our other obligations. In times of weak market conditions, we may experience reduced profit margins from increased pricing pressure. We may not be able to continue to compete successfully in this market or against such competition. If we cannot compete successfully, we may lose market share and our business, consolidated financial condition, results of operations and cash flows could be materially adversely affected.

Natural gas operations entail inherent risks, including equipment defects, malfunctions and failures and natural disasters, which could result in uncontrollable flows of gas or well fluids, fires and explosions. These risks may expose us, as an equipment operator or fabricator, to liability for personal injury, wrongful death, property damage, pollution and other environmental damage. We have obtained insurance against liability for personal injury, wrongful death and property damage, but we cannot be sure that the insurance will be adequate to cover the liability we may incur. Insurance premium pricing is highly volatile and we cannot be sure that we will be able to obtain insurance in the future at a reasonable cost or at all. Our business, consolidated financial condition, results of operations and cash flows could be materially adversely affected if we incur substantial liability and the damages are not covered by insurance or are in excess of policy limits.

We depend on the continuing efforts of our executive officers and senior management. The departure of any of our key personnel could have a material adverse effect on our business, operating results and financial condition. We do not maintain key man life insurance coverage with respect to our executive officers or key management personnel. In addition, we believe that our success depends on our ability to attract and retain qualified employees. There is significant demand in our industry for qualified engineers and mechanics to manufacture and repair natural gas compression equipment. If we fail to retain our skilled personnel and to recruit other skilled personnel, we could be unable to compete effectively.

We treat our sale leaseback transactions as financing arrangements for income tax and certain other tax purposes. A tax treatment inconsistent with our position could have a material adverse effect on our financial condition, results of operations and liquidity. We intend to continue to treat the leases as a secured financing arrangement for income and certain other tax purposes, which is consistent with the way the leases are intended to be treated for bankruptcy law and state law purposes. If the Internal Revenue Service or another taxing authority were to successfully contend that the leases or any of our other operating leases should be treated as a sale leaseback of equipment rather than a secured financing arrangement, we may owe significant additional taxes. This result may affect our ability to make payments on our debt or our compression equipment lease obligations.

Our business is subject to a variety of federal, state, local and foreign laws and regulations relating to the environment, health and safety. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance. From time to time as part of the regular overall evaluation of our operations, including newly acquired operations, we apply for or amend facility permits with respect to stormwater or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us to new or revised permitting conditions that may be onerous or costly to comply with. In addition, certain of our customer service arrangements may require us to operate, on behalf of a specific customer, petroleum storage units such as underground tanks or pipelines and other regulated units, all of which may impose additional compliance and permitting obligations.

As one of the largest natural gas compression companies in the United States, we conduct operations at numerous facilities in a wide variety of locations across the country. Our operations at many of these facilities require federal, state or local environmental permits or other authorizations. For example, natural gas compressors at many of our customer facilities require individual air permits or general authorizations to operate under various air regulatory programs established by rule or regulation. These permits and authorizations frequently contain numerous compliance requirements, including monitoring and reporting obligations and operational restrictions, such as emission limits. Given the large number of facilities in which we operate, and the numerous environmental permits and other authorizations applicable to our operations, we occasionally identify or are notified of technical violations of certain requirements existing in various permits and other authorizations, and it is likely that similar technical violations will occur in the future. Occasionally, we have been assessed penalties for our non-compliance, and we could be subject to such penalties in the future. While such penalties generally do not have a material financial impact on our business or operations, it is possible future violations could result in substantial penalties.

We are evaluating the impact on our operations of recently promulgated air emission regulations under the Clean Air Act relating to non-road engines. We intend to implement any equipment upgrades or permit modifications required by these air emission regulations according to the required schedule of compliance. We do not anticipate, however, that any changes or updates in response to such regulations, or any other anticipated permit modifications (for stormwater, other air emission sources or otherwise) or anticipated ongoing regulatory compliance obligations will have a material adverse effect on our operations either as a result of any enforcement measures or through increased capital costs. Based on our experience to date, we believe that the future cost of compliance with existing laws and regulations will not have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows. However, future events, such as compliance with more stringent laws, regulations or permit conditions, a major expansion of our operations into more heavily regulated activities, more vigorous enforcement policies by regulatory agencies, or stricter or different interpretations of existing laws and regulations could require us to make material expenditures.

We have conducted preliminary environmental site assessments with respect to some, but not all, properties currently owned or leased by us, usually in a pre-acquisition context. Some of these assessments have revealed that soils and/or groundwater at some of our facilities are contaminated with hydrocarbons, heavy metals and various other regulated substances. With respect to newly acquired properties, we do not believe that our operations caused or contributed to any such contamination in any material respect and we are not currently under any governmental orders or directives requiring us to undertake any remedial activity at such properties. We typically will develop a baseline of site conditions so we can establish conditions at the outset of our operations on such property. However, the handling of petroleum products and other regulated substances is a normal part of our operations and we have experienced occasional minor spills or incidental leakage in connection with our operations. Certain properties previously owned or leased by us were determined to be affected by soil contamination. Where such contamination was

identified and determined by us to be our responsibility, we conducted remedial activities at these previously-held properties to the extent we believed necessary to meet regulatory standards and either sold the owned properties to third parties or returned the leased properties to the lessors. Based on our experience to date and the relatively minor nature of the types of contamination we have identified to date, we believe that the future cost of necessary investigation or remediation on our current properties will not have a material adverse effect on our business, consolidated financial condition, results of operations, and cash flows. We cannot be certain, however, that clean-up standards will not become more stringent, or that we will not be required to undertake any remedial activities involving any material costs on any of these current or previously held properties in the future or that the discovery of unknown contamination or third-party claims made with respect to current or previously owned or leased properties will not result in material costs.

Our stock price, like that of other companies, can be volatile. Some of the factors that could affect our stock price are quarterly increases or decreases in revenue or earnings, changes in revenue or earnings estimates by the investment community, and speculation in the press or investment community about our financial condition or results of operations. General market conditions and domestic or international economic factors unrelated to our performance may also affect our stock price. For these reasons, investors should not rely on recent trends to predict future stock prices or financial results. In addition, following periods of volatility in a company’s securities, securities class action litigation against a company is sometimes instituted and has been previously brought against us. This type of litigation could result in liability, substantial costs and the diversion of management time and resources.

In June 2001, the FASB issued SFAS 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets” (“SFAS 143”). SFAS 143 establishes the accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 became effective for us on January 1, 2003. The adoption of this new standard did not have a material effect on our consolidated results of operations, cash flows or financial position.

In April 2002, the FASB issued SFAS 145, “Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 updates, clarifies and simplifies existing accounting pronouncements. Provisions of SFAS 145 related to the rescission of Statement 4 became effective for us on January 1, 2003. The provisions of SFAS 145 related to SFAS 13 are effective for transactions occurring after May 15, 2002. We have adopted the provisions of the new standard, which had no material effect on our consolidated results of operations, cash flows or financial position.

In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue (“EITF”) No. 94-3. We adopted the provision of SFAS 146 for restructuring activities initiated after December 31, 2002, which had no material effect on our financial statements. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of the commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

In November 2002, the EITF reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF 00-21 became effective for interim periods beginning after June 15, 2003. We have adopted the

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of the provisions of this interpretation did not have a material effect on our consolidated results of operations, cash flows or financial position.

In January 2003, the FASB issued FIN 46. The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved by means other than through voting rights and the determination of when and which business enterprise should consolidate the VIE in its financial statements. FIN 46 applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. As revised, FIN 46 was effective immediately for VIE’s created after January 31, 2003. For special-purposes entities created prior to February 1, 2003, FIN 46 is effective at the first interim or annual reporting period ending after December 15, 2003, or December 31, 2003 for us. For entities, other than special purpose entities, created prior to February 1, 2003, FIN 46 is effective for us as of March 31, 2004. In addition, FIN 46 allows companies to elect to adopt early the provisions of FIN 46 for some, but not all, of the variable interest entities they own. Because we are still evaluating whether or not we will make any other potential changes in connection with our adoption of FIN 46, we have not adopted the provisions of FIN 46 other than discussed below.

Prior to July 1, 2003, we entered into five lease transactions that were recorded as a sale and leaseback of the compression equipment and were treated as operating leases for financial reporting purposes. On July 1, 2003, we adopted the provisions of FIN 46 as they relate to the special purpose entities that lease compression equipment to us. As a result of the adoption, we added approximately $1,089 million in compressor equipment assets, $192.3 million of accumulated depreciation (including approximately $58.6 million of accumulated depreciation related to periods before the sale and leaseback of the equipment), $1,105.0 million in debt and $34.6 million in minority interest obligations to our balance sheet, and we reversed $108.8 million of deferred gains that were recorded on our balance sheet as a result of the sale leaseback transactions. On July 1, 2003, we recorded a $133.7 million charge ($86.9 million net of tax) to record the cumulative effect from the adoption of FIN 46 related to prior period depreciation of the compression equipment assets. Additionally, we estimate that we will record approximately $17 million per year in additional depreciation expense on our leased compression equipment as a result of the inclusion of the compression equipment on our balance sheet and will also record the payments made under our compression equipment leases as interest expense.

We have a consolidated subsidiary trust that has mandatorily redeemable convertible preferred securities outstanding that have a liquidation value of $86.3 million. These securities were previously reported on our balance sheet as mandatorily redeemable convertible preferred securities. Because we only have a limited ability to make decisions about its activities and we are not the primary beneficiary of the trust, the trust is a VIE under FIN 46. As such, the mandatorily redeemable convertible preferred securities issued by the trust are no longer reported on our balance sheet. Instead, we now report our subordinated notes payable to the trust as a debt. These intercompany notes have previously been

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. All provisions of SFAS 149 will be applied prospectively. We have adopted the provisions SFAS 149, which did not have a material effect on our consolidated results of operations, cash flow or financial position.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for interim periods beginning after June 15, 2004. On November 7, the FASB issued Staff Position 150-4 that delayed the effective date for certain types of financial instruments. We do not believe the adoption of the guidance currently provided in SFAS 150 will have a material effect on our consolidated results of operations or cash flow. However, we may be required to classify as debt approximately $28.6 million in sale leaseback obligations that are currently reported as “Minority interest” on our condensed consolidated balance sheet pursuant to FIN 46. See “— Leasing Transactions and Accounting Change for FIN 46.”

These minority interest obligations represent the equity of the entities that lease compression equipment to us. In accordance with the provisions of our compression equipment lease obligations, the equity certificate holders are entitled to quarterly or semi-annual yield payments on the aggregate outstanding equity certificates. As of December 31, 2003, the yield rates on the outstanding equity certificates ranged from 4.4% to 9.5%. Equity certificate holders may receive a return of capital payment upon lease termination or our purchase of the leased compression equipment after full payment of all debt obligations of the entities that lease compression equipment to us. At December 31, 2003, the carrying value of the minority interest obligations approximated the fair market value of assets that would be required to be transferred to redeem the minority interest obligations.

We are exposed to interest rate and foreign currency risk. Hanover and its subsidiaries periodically enter into interest rate swaps to manage our exposure to fluctuations in interest rates. At December 31, 2003, the fair market value of our interest rate swaps, excluding the portion attributable to and included in accrued interest, was a liability of approximately $15.1 million, of which $11.7 million was recorded in accrued liabilities and $3.4 million in other long-term liabilities. At December 31, 2003 we were party to three interest rate swaps to convert variable lease payments under certain lease arrangements to fixed payments as follows (dollars in thousands):

At December 31, 2003, we were exposed to variable rental rates, which fluctuate with market interest rate, on a portion of the equipment leases we entered into in 2001 and 2000. Assuming a hypothetical 10%

We are also exposed to interest rate risk on borrowings under our floating rate bank credit facility. At December 31, 2003, $27.0 million was outstanding bearing interest at a weighted average effective rate of 4.2% per annum. Assuming a hypothetical 10% increase in the weighted average interest rate from those in effect at December 31, 2003, the increase in annual interest expense for advances under this facility would be approximately $0.1 million.

For the year ended December 31, 2003, our Argentine operations represented approximately 5% of our revenue and 9% of our gross profit. During the years ended December 31, 2003 and 2002, we recorded an exchange gain of approximately $0.5 million and an exchange loss of approximately $9.9 million, respectively for assets exposed to currency translation in Argentina.

During 2003, we entered into forward exchange contracts with a notional value of $10.0 million to mitigate the risk of changes in exchange rates between the Euro and the U.S. dollar. These contracts mature during 2004.

The financial statements and supplementary information specified by this Item are presented following Item 15 of this report.

(a) Evaluation of Disclosure Controls and Procedures. The Company’s principal executive officer and principal financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2003 (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based on the evaluation, the Company’s principal executive officer and principal financial officer believe that the Company’s disclosure controls and procedures were effective to ensure that material

(b) Changes in Internal Controls. Under the direction of our President and Chief Executive Officer, Senior Vice President and Chief Financial Officer, and Senior Vice President and General Counsel, we continued the process of reviewing our internal controls and procedures for financial reporting and have changed or are in the process of changing some of those controls and procedures, including changes relating to: information systems (including controls over access to the systems and segregation of duties), human resources; internal audit; tax accounting, planning and analysis, reconciliation of intercompany accounts; approval of capital expenditures; preparation, approval and closing of significant agreements and transactions; review and quantification of compressor substitutions under compression equipment lease agreements; integration of acquired businesses and assets (including integration of certain financial and accounting systems related thereto); standardization of internal controls and policies across the organization; and the development, implementation and enhancements of corporate governance policies and procedures and performance management systems. As part of our review of our internal controls and procedures for financial reporting, we have made personnel changes and hired additional qualified staff in the legal, accounting/finance and human resource areas and are utilizing third parties to assist with some of our integration and internal audit functions. This review is ongoing, and the review to date constitutes the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934.

The information included or to be included in the Company’s definitive proxy statement for its 2004 Annual Meeting of Stockholders under the captions “Nominees for Election as Directors,” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated by reference herein. Please see Item 1 of this Form 10-K for identification of our executive officers.

Hanover has adopted “P.R.I.D.E. in Performance — Hanover’s Guide to Ethical Business Conduct” (“Ethics Guide”) that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Ethics Guide is posted on the Company’s website at http://www.hanover-co.com. Changes to and waivers granted with respect to our Ethics Guide, if any, relating to our principal executive officer, principal financial officer, principal accounting officer, and other executive officers and directors of Hanover that we are required to disclose pursuant to applicable rules and regulations of the Securities and Exchange Commission will also be posted on our website. Upon request the Company will provide a copy of our Ethics Guide without charge. Such request can be made in writing to the Corporate Secretary at Hanover Compressor Company, 12001 North Houston Rosslyn Road, Houston, Texas 77086.

The information included or to be included under the caption “Information Regarding Executive Compensation” in the Company’s definitive proxy statement for its 2004 Annual Meeting of Stockholders is incorporated by reference herein.

The information included or to be included under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s definitive proxy statement for its 2004 Annual Meeting of Stockholders is incorporated by reference herein.

The equity compensation plans and agreements discussed in this section are referred to collectively as the “Equity Compensation Plans.” The table below provides information as of December 31, 2003 with respect to shares of our common Stock that may be issued under the following Equity Compensation Plans of the Company: 1997 Stock Option Plan, the 1998 Stock Option Plan, the December 9, 1998 Stock Option Plan, the 1999 Stock Option Plan, the 2001 Equity Incentive Plan and the 2003 Stock Incentive Plan. The Compensation Committee has authority to make future grants only under the 1997 Stock Option Plan, the 2001 Equity Incentive Plan and the 2003 Stock Incentive Plan.

The table also includes information with respect to shares of our common stock subject to outstanding options that were granted under (1) the following Equity Compensation Plans adopted prior to our initial public offering in 1997, under which the authority to make additional grants has been terminated: the 1992 Stock Compensation Plan, the 1993 Management Stock Option Plan, the 1995 Employee Stock Option Plan, the 1995 Management Stock Option Plan, the 1996 Employee Stock Option Plan; and (2) Stock Option Agreements entered into by and between Hanover and the following individuals: Tom P. McNeil III, Glenn Wind, and Kurt Wind. The plans listed in (1) above are referred to as the “Pre-IPO Plans.” The agreements listed in (2) above are referred to as the “Pre-IPO Agreements.”


(1)	Composed of the 2003 Stock Incentive Plan, the 2001 Equity Incentive Plan and the 1997 Stock Option Plan.

(2)	Composed of all of the Equity Compensation Plans except the 2003 Stock Incentive Plan, the 2001 Equity Incentive Plan and the 1997 Stock Option Plan.

(3)	The table does not include information for the Applied Process Solutions Incorporated (“APSI”) 1998 Stock Option Plan assumed by Hanover in connection with its acquisition of APSI in May 2000. As of December 31, 2003, a total of 35,873 shares of the Common Stock were issuable upon exercise of outstanding options under the assumed plan. The weighted average exercise price of those outstanding options is $16.65 per share. No additional awards may be granted under such plan.

(4)	In addition, as of December 31, 2003, there are 512,000 shares of restricted stock outstanding granted under the 2003 Stock Incentive Plan and the 2001 Equity Incentive Plan.

(5)	The Board of Directors terminated any existing authority to make future grants under these plans on May 15, 2003.

The Equity Compensation Plans that have not been approved by security holders are described below. The Pre-IPO Plans and the 1997 Stock Option Plan, the 1998 Stock Option Plan, the December 9, 1998 Stock Option Plan, and the 1999 Stock Option Plan have the following material features: (1) awards under such plans are limited to stock options and may be made, depending on the terms of each plan, to the Company’s officers, directors, employees, advisors and consultants; (2) unless otherwise set forth in any applicable stock option agreement and depending on the terms of each plan, the stock options vest over a period of up to five years; and (3) the term of the stock options granted under the plans may not exceed 10 years, except for the 1992 Stock Option Plan under which the term of the stock options may not exceed 15 years. The Pre-IPO Agreements have the following material features: (1) awards under such agreements are limited to stock options and were made to the specific person named in the

Additional information as of December 31, 2003, about the Equity Compensation Plans that have not been approved by stockholders is provided in the following table.


	*	The authority to make future grants under these plans was terminated upon our initial public offering in 1997.


**	The Board of Directors terminated authority to make future grants under these plans on May 15, 2003.

The information included or to be included under the caption “Certain Relationships and Transactions” in the Company’s definitive proxy statement for its 2004 Annual Meeting of Stockholders is incorporated by reference herein.

The information included or to be included under the caption “Principal Accounting Fees and Services” in the Company’s definitive proxy statement for its 2004 Annual Meeting of Stockholders is incorporated by reference herein.


	1. Financial Statements. The following financial statements are filed as a part of this report.

During the quarter ended December 31, 2003, Hanover filed or furnished the following information in current reports on Form 8-K:


	•	On December 19, 2003, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release announcing a settlement with the Securities and Exchange Commission. The date of such report (the date of the earliest event reported) was December 18, 2003.

	•	On December 16, 2003, we filed a current report on Form 8-K, reporting under Item 5 that we entered into an underwriting agreement with J.P. Morgan Securities Inc., as representative of the several underwriters, and Citigroup Global Markets Inc., as independent underwriter, in connection with the issuance and sale of $200,000,000 aggregate principal amount of our 8.625% Senior Notes due 2010. We also reported that we entered into an underwriting agreement with J.P. Morgan Securities Inc., as representative of the several underwriters, and Simmons & Company International, as independent underwriter, in connection with the issuance and sale of $143,750,000 aggregate principal amount of our 4.75% Convertible Senior Notes due 2014. We also reported that we closed our new $350,000,000 bank credit facility. In addition, we filed the underwriting agreements, senior indenture, supplement indentures, forms of notes, opinion of Vinson & Elkins L.L.P., credit agreement and guarantee and collateral agreement under Item 7. The date of such report (the date of the earliest event reported) was December 9, 2003.

	•	On December 9, 2003, we filed a current report on Form 8-K, reporting under Item 5 that we filed a prospectus supplement with the Securities and Exchange Commission in connection with the offer and sale for the account of Schlumberger Technology Corporation of $262,621,810 aggregate principal amount at maturity of our Zero Coupon Subordinated Notes due March 31, 2007. We also reported that we had bank commitments totaling $345 million for a proposed bank credit facility, and we reported the preliminary approval by the court of the proposed settlement to resolve all of the securities class actions, ERISA class actions and shareholder derivative actions previously filed against us and certain other individuals. In addition, we filed the prospectus supplement and form of proposed credit agreement under Item 7. The date of such report (the date of the earliest event reported) was December 2, 2003.

	•	On November 18, 2003, we filed a current report on Form 8-K, filing under Item 7 our Audited Consolidated Financial Statements for the fiscal years ended December 31, 2002, 2001 and 2000. The financial statements were filed to conform to the 2003 presentation for the distributions on our mandatorily redeemable preferred securities, now included in interest expense, and the change in value of derivative financial instruments, now included in leasing expense, as discussed under Item 5. The date of such report (the date of the earliest event reported) was November 18, 2003.

	•	On November 5, 2003, we filed a current report on Form 8-K, furnishing under Item 12 a press release announcing our financial results for the quarter ended September 30, 2003. The date of such report (the date of the earliest event reported) was November 5, 2003.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (a) (1) on page 72, present fairly, in all material respects, the financial position of Hanover Compressor Company and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15 (a) (2) on page 72, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 12 and 9 to the financial statements, the Company changed its method of accounting for variable interest entities in 2003 and goodwill and other intangibles in 2002, respectively.

Hanover Compressor Company, (“we”, “Hanover”, or “the Company”) a Delaware corporation, together with its subsidiaries, is a global market leader in the full service natural gas compression business and is also a leading provider of service, fabrication and equipment for oil and natural gas processing and transportation applications. We sell and rent this equipment and provide complete operation and maintenance services, including run-time guarantees, for both customer-owned equipment and our fleet of rental equipment. Hanover was founded as a Delaware corporation in 1990, and has been a public company since 1997. Our customers include both major and independent oil and gas producers and distributors as well as national oil and gas companies in the countries in which we operate. Our maintenance business, together with our parts and service business, provides solutions to customers that own their own compression and surface production and processing equipment, but want to outsource their operations. We also fabricate compressor and oil and gas production and processing equipment and provide gas processing and treating, gas measurement and oilfield power generation services, primarily to our domestic and international customers as a complement to our compression services. In addition, through our subsidiary, Belleli Energy S.r.l. (“Belleli”), we provide engineering, procurement and construction services primarily related to the manufacturing of heavy wall reactors for refineries and construction of desalination plants, primarily for use in Europe and the Middle East.

Substantially all of our assets and operations are owned or conducted by our wholly-owned subsidiary, Hanover Compression Limited Partnership (“HCLP”).

The accompanying consolidated financial statements include Hanover and its wholly-owned and majority owned subsidiaries and certain variable interest entities, for which we are the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated entities in which we own more than a 20% interest and do not have a controlling interest are accounted for using the equity method. Investments in entities in which we own less than 20% are held at cost. Prior year amounts have been reclassified to present certain of our businesses as discontinued operations. (See Note 3.)

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected at the reporting date. Management believes that the estimates are reasonable.

Our operations are influenced by many factors, including the global economy, international laws and currency exchange rates. Contractions in the more significant economies of the world could have a substantial negative impact on the rate of our growth and profitability. Acts of war or terrorism could influence these areas of risk and our operations. Doing business in foreign locations subjects us to various risks and considerations including, but not limited to, economic and political conditions in the United States and abroad, currency exchange rates, tax laws and other laws and trade restrictions.

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Our restricted cash represents funds held in escrow for the payment related to the settlement of our securities-related litigation. (See Note 19.)

Revenue from equipment rentals is recorded when earned over the period of rental and maintenance contracts which generally range from one month to five years. Parts, service and used equipment revenue is recorded as products are delivered and title is transferred or services are performed for the customer.

Compressor, production and processing equipment fabrication revenue is recognized using the percentage-of-completion method. We estimate percentage-of-completion for compressor and processing equipment fabrication on a direct labor hour to total labor hour basis. Production equipment fabrication percentage-of-completion is estimated using the direct labor hour to total labor hour and the cost to total cost basis. The average duration of these projects is typically between four to thirty-six months.

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, accounts receivable, advances to non-consolidated affiliates and notes receivable. We believe that the credit risk in temporary cash investments that we have with financial institutions is minimal. Trade accounts and notes receivable are due from companies of varying size engaged principally in oil and gas activities throughout the world. We review the financial condition of customers prior to extending credit and generally do not obtain collateral for trade receivables. Payment terms are on a short-term basis and in accordance with industry practice. We consider this credit risk to be limited due to these companies’ financial resources, the nature of products and the services we provide them and the terms of our rental contracts. Trade accounts receivable is recorded net of estimated doubtful accounts of approximately $5.5 million and $5.2 million at December 31, 2003 and 2002, respectively.

Inventory consists of parts used for fabrication or maintenance of natural gas compression equipment and facilities, processing and production equipment, and also includes compression units and production equipment that are held for sale. Inventory is stated at the lower of cost or market using the average-cost method.

Property, plant and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives as follows:

Major improvements that extend the useful life of an asset are capitalized. Repairs and maintenance are expensed as incurred. When rental equipment is sold, retired or otherwise disposed of, the cost, net of accumulated depreciation is recorded in parts, service and used equipment expenses. Sales proceeds are recorded in parts, service and used equipment revenues. Interest is capitalized in connection with the compression equipment and facilities that are constructed for Hanover’s use in our rental operations until such equipment is complete. The capitalized interest is recorded as part of the assets to which it relates and is amortized over the asset’s estimated useful life.

After a review of the estimated economic lives of our compression fleet, on July 1, 2001 we changed our estimate of the useful life of certain compression equipment to range from 15 to 30 years instead of a uniform 15-year depreciable life. Our new estimated lives are based upon our experience, maintenance program and the different types of compressors presently in our rental fleet. We believe our new estimate reflects the economic useful lives of the compressors more accurately than a uniform useful life applied to all compressors regardless of their age or performance characteristics. We estimate that the effect of this change in estimate on 2001 was a decrease in depreciation expense of approximately $5.0 million and an increase in net income of approximately $3.1 million ($0.04 per share).

Certain costs related to the development or purchase of internal-use software are capitalized and amortized over the estimated useful life of the software. Costs related to the preliminary project stage, data conversion and the post-implementation/operation stage of an internal-use computer software development project are expensed as incurred.

The excess of cost over net assets of acquired businesses is recorded as goodwill. In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 142, Goodwill and Other Intangible Assets (“SFAS 142”). Under SFAS 142, amortization of goodwill over an estimated useful life is discontinued. Instead, goodwill will be reviewed for impairment annually or whenever events indicate impairment may have occurred. Prior to adoption of SFAS 142 on January 1, 2002, we amortized goodwill on a straight-line basis over 15 or 20 years commencing on the dates of the respective acquisitions except for goodwill related to business acquisitions after June 30, 2001. Accumulated amortization was $13.7 million and $14.3 million at December 31, 2003 and 2002, respectively. Amortization of goodwill totaled $10.1 million in 2001. (See Note 9.) Identifiable intangibles are amortized over the assets’ estimated useful lives.

We have entered into sale leaseback transactions of compression equipment with special purpose entities. Sale leaseback transactions of compression equipment are evaluated for lease classification in accordance with SFAS No. 13 “Accounting for Leases.” Prior to the adoption in 2003 of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB 51” as revised in December 2003 (“FIN 46”), these special purpose entities were not consolidated by Hanover when the owners of the special purposes entities made a substantial residual equity investment of at least three percent that was at risk during the entire term of the lease. (See Notes 6 and 12.)

We account 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 our financial statements or tax returns. In estimating future tax consequences, all expected future events are considered other than enactments that would change the tax law or rates. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some or all of the deferred tax asset will not be realized.

The financial statements of subsidiaries outside the U.S., except those located in Latin America and 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 resulting gains and losses from the translation of accounts are included in accumulated other comprehensive income. For subsidiaries located in Latin America and highly inflationary economies, financial statements are measured using U.S. dollar functional currency and translation gains and losses are included in net income (loss).

Basic earnings (loss) per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares outstanding for the period. Diluted earnings (loss) per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options, warrants to purchase common stock, convertible senior notes and convertible subordinated notes, unless their effect would be anti-dilutive.

The table below indicates the net income for purposes of computing diluted net income per share from continuing operations (in thousands):

The table below indicates the potential common shares issuable which were included in computing the dilutive potential common shares used in diluted earnings (loss) per common share (in thousands):


**	Excluded from diluted earnings (loss) per common share as the effect would have been anti-dilutive.

The table below indicates the potential common shares issuable which were excluded from net dilutive potential common shares issuable as their effect would be anti-dilutive (in thousands):

Certain of our employees participate in stock option plans that provide for the granting of options to purchase Hanover common shares. In accordance with Statement of Financial Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) Hanover measures compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). The following pro forma net income (loss) and earnings (loss) per share data illustrates the effect on net income (loss) and net earnings (loss) per share if the fair value method had been applied to all outstanding and unvested stock options in each period (in thousands).

In 2003 and 2002, we granted 435,000 and 151,000 restricted shares, respectively, of Hanover common stock to certain employees as part of an incentive compensation plan. The restricted stock grants vest equally over four years. As of December 31, 2003, 512,000 restricted shares were outstanding under our incentive compensation plans. We will recognize compensation expense equal to the fair value of the stock at the date of grant over the vesting period related to these grants. During 2003 and 2002, we recognized $1.2 million and $0.4 million, respectively, in compensation expense related to these grants.

Components of comprehensive income (loss) are net income and all changes in equity during a period except those resulting from transactions with owners. Accumulated other comprehensive income (loss)

consists of the foreign currency translation adjustment and changes in the fair value of derivative financial instruments, net of tax. The following table summarizes our accumulated other comprehensive income (loss) (in thousands):

We utilize derivative financial instruments to minimize the risks and/or costs associated with financial and global operating activities by managing our exposure to interest rate fluctuation on a portion of our leasing obligations and foreign currency exchange changes on a small portion of our international business. We do not utilize derivative financial instruments for trading or other speculative purposes. The cash flow from hedges is classified in the Consolidated Statements of Cash Flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions.

In June 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 133, as amended by SFAS 137, SFAS 138, and SFAS 149, requires that, upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings. We adopted SFAS 133 beginning January 1, 2001. (See Note 14.)

Certain amounts in the prior period’s financial statements have been reclassified to conform to the 2003 financial statement classification as more fully discussed in Notes 3 and 14. These reclassifications have no impact on net income. See Note 3 for a discussion of discontinued operations.

Acquisitions were accounted for under the purchase method of accounting. Results of operations of companies acquired are included from the date of acquisition. We allocate the cost of the acquired business to the assets acquired and the liabilities assumed based upon fair value estimates thereof. These estimates are revised during the allocation period as necessary when information regarding contingencies becomes available to redefine and requantify assets acquired and liabilities assumed. The allocation period varies for each acquisition but does not exceed one year. To the extent contingencies are resolved or settled during the allocation period, such items are included in the revised purchase price allocation. After the allocation period, the effect of changes in such contingencies is included in results of operations in the periods the adjustments are determined.

$22.4 million from a bankruptcy estate of Belleli’s former parent and leased these assets to Belleli for approximately $1.2 million per year, for a term of seven years.

In December 2003, we acquired the remaining 50% interest in Servi Compressores, CA and cancelled the note receivable related to the sale of such interest in June 2000.

In July 2002, we acquired a 92.5% interest in Wellhead Power Gates, LLC (“Gates”) for approximately $14.4 million and had loaned approximately $6 million to Gates prior to our acquisition. Gates is a developer and owner of a forty-six megawatt cycle power facility in Fresno County, California. This investment was accounted for as a consolidated subsidiary and was classified as an asset held for sale and its operating results were reported in income (loss) from discontinued operations, until sold in September 2003. See Note 3 for a discussion of discontinued operations.

In July 2002, we acquired a 49.0% interest in Wellhead Power Panoche, LLC (“Panoche”) for approximately $6.8 million and had loaned approximately $5.0 million to Panoche prior to the acquisition of our interest. Panoche is a developer and owner of a forty-nine megawatt cycle power facility in Fresno County, California, which is under contract with the California Department of Water Resources. This investment was classified as an asset held for sale and the equity income (loss) from this non-consolidated subsidiary was reported in income (loss) from discontinued operations, until sold in June 2003. See Note 3 for a discussion of discontinued operations.

In July 2002, we acquired certain assets of Voyager Compression Services, LLC a natural gas compression services company located in Gaylord, Michigan, for approximately $2.5 million in cash.

In August 2001, we acquired 100% of the issued and outstanding shares of Production Operators Corporation (“POC”) from Schlumberger for $761 million in cash, our common stock and debt, subject to certain post-closing adjustments pursuant to the purchase agreement that to date have resulted in an increase in the purchase price to approximately $778 million due to an increase in net assets acquired. Under the terms of the purchase agreement, Schlumberger received approximately $270 million in cash (excluding the amounts paid for the increase in net assets), $150 million in a long-term subordinated note, which in May, 2003 was restructured as our Zero Coupon Subordinated Notes due March 31, 2007, and 8,707,693 shares of our common stock, or approximately 11% of our then outstanding shares, which are required to be held by Schlumberger for at least three years following the closing date (see Note 11). The ultimate number of shares issued under the purchase agreement was determined based on the nominal value of $283 million divided by $32.50 per share, the 30-day average closing price of Hanover common stock as defined under the acquisition agreement and subject to a collar of $41.50 and $32.50. The estimated fair value of the stock issued was $212.5 million, based on the market value of the shares at the time the number of shares issued was determined, reduced by an estimated 20% discount due to the restrictions on the stock’s marketability. The POC acquisition was accounted for as a purchase and was included in our financial statements commencing on September 1, 2001.

Additionally, as part of the purchase agreement, we are required to make a payment of up to $58.0 million due upon the completion of a financing of the PIGAP II South American joint venture (“PIGAP” ) acquired by Hanover. Because the joint venture failed to execute the financing on or before December 31, 2002, we had the right to put our interest in the joint venture back to Schlumberger in exchange for a return of the purchase price allocated to the joint venture, plus the net amount of any capital contributions by Hanover to the joint venture. (See Note 11.)

The purchase price was a negotiated amount between Hanover and Schlumberger. We believe the purchase price represented the fair market value of the POC business based on its assets, customer base, reputation, market position (domestic and international) and potential for long-term growth. We incurred approximately $15.0 million in expenses in connection with the acquisition.

As of December 31, 2003 we had recorded approximately $68.2 million in goodwill, that will not be deductible for tax purposes, related to the POC acquisition which was not amortized in accordance with the transition provisions of SFAS 142 (See Note 9). In addition, we recorded $9.8 million in identifiable intangible assets of which $8.2 million was amortized over a 24 month weighted average life and $1.6 million is included in our basis of the PIGAP joint venture and relates to the option to put the joint venture back to Schlumberger. The purchase price is subject to a contingent payment by Hanover to Schlumberger based on the realization of certain tax benefits by Hanover over the next 15 years. No payments on this contingent obligation have been made to date.

In June 2001, we acquired the assets of J&R International for approximately $3.7 million in cash and 17,598 shares of Hanover’s common stock valued at approximately $0.7 million.

In April 2001, we acquired certain assets of Power Machinery, Inc. for approximately $2.6 million in cash and 108,625 shares of Hanover’s common stock valued at approximately $3.9 million.

In March 2001, we purchased OEC Compression Corporation (“OEC”) in an all-stock transaction for approximately $101.8 million, including the assumption and payment of approximately $64.6 million of OEC indebtedness. We paid an aggregate of approximately 1,145,706 shares of Hanover common stock to stockholders of OEC. The acquisition was accounted for under the purchase method of accounting and is included in our financial statements commencing in April 2001.

During 2002 and 2001, we completed other acquisitions which were not significant either individually or in the aggregate.

The pro forma information set forth below assumes the Belleli acquisition is accounted for had the purchase occurred at the beginning of 2002. The remaining acquisitions were not considered material for pro forma purposes. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated at that time (in thousands, except per share amounts):

During the fourth quarter of 2002, Hanover’s Board of Directors approved management’s plan to dispose of our non-oilfield power generation projects, which were part of our domestic rental business, and certain used equipment businesses, which were part of our parts and service business. These disposals meet the criteria established for recognition as discontinued operations under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”). SFAS 144 specifically requires that such amounts must represent a component of a business comprised of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. These businesses are reflected as discontinued operations in our Consolidated Statement of Operations. Due to changes in market conditions, the disposal plan was not completed in 2003. We are continuing to actively market these assets and have made valuation adjustments as a result of the change in market conditions. As a result of our consolidation efforts during 2003, we reclassified certain closed facilities to assets held for sale. These assets are expected to be sold within the next 12 months and the assets and liabilities are reflected as held-for-sale on our Consolidated Balance Sheet.

In 2003, we recorded a $21.6 million ($14.1 million after tax) charge to write-down our investment in discontinued operations to their current estimated market value. During the fourth quarter of 2002, Hanover recognized a pre-tax charge to discontinued operations of approximately $52.3 million ($36.5 million after tax) for the estimated loss in fair-value from carrying value expected to be realized at the time of disposal. This amount includes a $19.0 million pre-tax impairment of goodwill. During the second quarter of 2002, Hanover recognized a pre-tax write-down of $6.0 million ($3.9 million after tax) for certain turbines related to the non-oilfield power generation business which has also been reflected as discontinued operations.

In 2003, we announced that we had agreed to sell our 49% membership interest in Panoche and our 92.5% membership interest in Gates to Hal Dittmer and Fresno Power Investors Limited Partnership, who owned the remaining interests in Panoche and Gates. Panoche and Gates own gas-fired peaking power plants of 49 megawatts and 46 megawatts, respectively. The Panoche transaction closed in June 2003 and the Gates transaction closed in September 2003. Total consideration for the transactions was approximately $27.2 million consisting of approximately $6.4 million in cash, $2.8 million in notes that mature in May 2004, a $0.5 million note that matures in September 2005 and the release of our obligations under a capital lease from GE Capital to Gates that had an outstanding balance of approximately $17.5 million at

the time of the Gates closing. In addition, we were released from a $12 million letter of credit from us to GE Capital that was provided as additional credit support for the Gates capital lease.

Summary balance sheet data for assets held for sale as of December 31, 2003 (in thousands):

Summary balance sheet data for discontinued operations as of December 31, 2002 (in thousands):


During the year ended December 31, 2003, 2002 and 2001 we recorded approximately $3.0 million, $13.9 million and $2.3 million, respectively, in inventory write-downs and reserves for parts inventory which was either obsolete, excess or carried at a price above market value. As of December 31, 2003 and 2002, we had inventory reserves of $12.7 million and $14.2 million, respectively.

Costs, estimated earnings and billings on uncompleted contracts consisted of the following (in thousands):

Depreciation expense was $160.6 million, $139.4 million and $73.6 million in 2003, 2002 and 2001, respectively. Depreciation expense for 2003 and 2002 includes $14.3 million and $34.5 million, respectively for the impairment of certain idle units of our compression fleet that are being retired and the acceleration of depreciation of certain plants and facilities expected to be sold or abandoned. Assets under construction of $81.3 million and $116.4 million are included in compression equipment, facilities and other rental assets at December 31, 2003 and 2002, respectively. We capitalized $1.0 million, $2.5 million and $2.8 million of interest related to construction in process during 2003, 2002, and 2001, respectively.

On July 1, 2003, we adopted the provisions of FIN 46 as they relate to the special purpose entities that lease compression equipment to us. As a result, we added approximately $1,089.4 million in compressor equipment assets, $192.3 million of accumulated depreciation (including approximately $58.6 million of accumulated depreciation related to periods before the sale and leaseback of the equipment), $1,105.0 million in debt and $34.6 million in minority interest obligations to our balance sheet, and we reversed $108.8 million of deferred gains that were recorded on our balance sheet in Other liabilities as a result of the sale leaseback transactions. See Note 12 and 22 for a discussion of the impact of our partial adoption of FIN 46.

Notes receivable result primarily from customers for sales of equipment or advances to other parties in the ordinary course of business. During 2003, we sold our ownership positions in two non-oilfield power generation projects and received a portion of the proceeds in notes. (See Note 3.) During 2002, we recorded a charge in other expense to reserve for certain employee notes. (See Note 20.)

In 2003, upon the acquisition of the remaining 49% interest of Belleli, certain contract based intangibles were reclassified to goodwill.

Amortization of intangible and other assets totaled $12.0 million, $11.8 million and $5.1 million in 2003, 2002 and 2001, respectively. Estimated future intangible amortization expense is (in thousands):

Investments in affiliates that are not controlled by Hanover but where we have the ability to exercise significant influence over the operations are accounted for using the equity method. Our share of net income or losses of these affiliates is reflected in the Consolidated Statement of Operations as Equity in income of non-consolidated affiliates. Our primary equity method investments are comprised of entities that own, fabricate, operate, service and maintain compression and other related facilities. Our equity method investments totaled approximately $87.6 million and $148.8 million at December 31, 2003 and 2002, respectively.

Our ownership interest and location of each equity method investee at December 31, 2003 is as follows:

Summarized balance sheet information for investees accounted for by the equity method follows (on a 100% basis, in thousands):

Summarized earnings information for these entities for the years ended December 31, 2003, 2002 and 2001 follows (on a 100% basis, in thousands):


(1)	Amounts for the joint ventures acquired in connection with the POC business acquisition are included from September 1, 2001.

The most significant investments are the joint ventures (Pigap II, El Furrial and Simco/ Harwat Consortium) acquired in connection with the POC acquisition completed in August 2001. At December 31, 2003 and 2002, these ventures account for approximately $79.4 and $141.0 million of our equity investments, respectively, and generated equity in earnings for 2003, 2002 and 2001 of approximately $21.7 million, $21.7 million and $8.1 million. During 2003 and 2002, we received approximately $18.5 million and $16.6 million in dividends from these joint ventures. In connection with our investment in El Furrial and Simco/ Harwat Consortium, we guaranteed our portion of the debt in the joint venture related to these projects. At December 31, 2003 and 2002 we have guaranteed approximately $52.3 million and $56.7 million, respectively, of the debt which is on these joint venture books. These amounts are not recorded on Hanover’s books.

In October 2003, the PIGAP II joint venture engaged in a project financing and distributed approximately $78.5 million to us, of which approximately $59.9 million was used to repay a non-recourse promissory note that had been secured by our interest in PIGAP II (See Note 11.)

During 2003, we acquired a 35% interest in CrystaTech, Inc. a process technology company, for approximately $0.5 million.

The financial data for 2001 includes Belleli. Effective January 2001, we agreed to provide certain facilitation services to Belleli and provide Belleli with project financing including necessary guarantees, bonding capacity and other collateral on an individual project basis. We received $1.7 million from Belleli in 2001 for our facilitation services. In November 2002 and August 2003, Hanover acquired additional interest in Belleli bringing the total ownership to 100%. The increase in ownership in November 2002, required that we record our investment in Belleli using the consolidation method of accounting rather than equity method accounting. The results of Belleli’s operations subsequent to the acquisition of the controlling interest in November 2002, and the assets and liabilities of Belleli have been consolidated in our financial statements. (See Note 2.)

In the normal course of business, we engage in purchase and sale transactions with Collicutt Energy Services Ltd. During the years ended December 31, 2003, 2002 and 2001, we had sales to this related party of $0.3 million, $0.9 million and $2.6 million respectively; and purchases of $6.1 million, $19.6 million and $19.2 million, respectively. At December 31, 2003 and 2002, we had a net payable to this related party of $0.8 million and $0.1 million, respectively. In 2002, due to permanent decline in the market value of our investment in Collicutt Energy Services Ltd., we recorded to Other expense an impairment of $5.0 million.

We also hold interests in companies in which we do not exercise significant influence over the operations. These investments are accounted for using the cost method. Cost method investments totaled approximately $1.1 million and $1.9 million at December 31, 2003 and 2002, respectively. During 2002, we determined that certain of our cost method investments were permanently impaired and therefore recorded in Other expense impairment charges amounting to $7.1 million.

In May 2000, we acquired common stock of Aurion Technologies, Inc. (“Aurion”), a technology company formed to develop remote monitoring and data collection services for the compression industry, for $2.5 million in cash. In 2001, we purchased additional shares for approximately $1.3 million, advanced $2.7 million to Aurion and had an accounts receivable of $1.1 million. Aurion filed for bankruptcy protection in March 2002, and accordingly, we recorded in Other expense approximately $5.0 million during the year ended December 31, 2001 to impair our investment and the unrecoverable amount of the advances. During 2002, we recorded an additional charge related to Aurion of $3.9 million.

In January 2002,we adopted SFAS 142. Under SFAS 142, amortization of goodwill over an estimated useful life was discontinued. Instead, goodwill will be reviewed for impairment annually or whenever events indicate impairment may have occurred. The standard also requires acquired intangible assets to be recognized separately and amortized as appropriate. The adoption of SFAS 142 has had an impact on Hanover’s financial statements, due to the discontinuation of goodwill amortization expense.

The provisions of SFAS 142 require us to identify our reporting units and perform an annual impairment assessment of the goodwill attributable to each reporting units. We determined that our reporting units are the same as our business segments, except for our production and processing equipment business that we evaluated at one level below our business segments. We perform our annual impairment assessment in the fourth quarter of the year and determine the fair value of reporting units using a combination of the expected present value of future cash flows and the market approach.

Due to a downturn in our business and changes in the business environment in which we operate, we completed an additional impairment analysis as of June 30, 2002. As a result of the test performed as of June 30, 2002, we recorded a $47.5 million impairment of goodwill attributable to our production and

processing equipment fabrication business unit. In the fourth quarter of 2002, we recorded a $4.6 million goodwill impairment related to our pump division.

During 2003, we performed an impairment review of goodwill and because the present value of Belleli’s expected cash flows was less than the book value of our investment in Belleli, we determined that a $35.5 million impairment charge should be recorded on the goodwill associated with Belleli. (See Note 2.)

The table below presents the change in the net carrying amount of goodwill for the years ended December 31, 2003 and 2002 (in thousands):

Additions to goodwill for our production and processing segment for 2003 and 2002 relate to our acquisition of Belleli. (See Note 2).

Hanover’s adjusted net income and earnings per share, adjusted to exclude goodwill amortization expense, for the twelve months ended December 31, 2001 is as follows (in thousands, except per share data):

The decrease of $60.7 million for the additional purchase price for POC is due to the reclassification and repayment of a $58 million contingent liability and accrued interest associated with the PIGAP II joint venture that was restructured into the PIGAP Note. (See Note 2 and 11.)

Beginning in July 2003, payments accrued under our sale leaseback transactions which were previously included in accrued leasing are included in accrued interest as a result of adopting the provisions of FIN 46 and consolidating the special purpose entities that lease compression equipment to us. (See Note 12.)

In December 2002, we announced a plan to consolidate certain of our manufacturing facilities and to terminate approximately 500 employees worldwide during 2003. In connection with the planned severance, we recorded an expense to selling, general and administrative expenses for $2.7 million for estimated termination benefits and the amount is included in accrued other liabilities. As of December 31, 2003, $2.0 million had been paid out for the planned severance and we reversed the remaining balance. During the fourth quarter of 2003, we identified additional headcount reductions and implemented a plan to close two additional facilities and recorded a $0.7 million expense.

In November 2002, we increased our ownership in Belleli to 51%. (See Note 2.) Belleli has financed its operations through the factoring of its receivables. Such factoring is typically short term in nature and at December 31, 2003 bore interest at a weighted average rate of 4.0%. In addition, Belleli’s revolving credit facilities bore interest at a weighted average rate of 3.2% and 3.0% at December 31, 2003 and 2002, respectively. These revolving credit facilities expire in 2004 and are partially secured by letters of credit issued and outstanding under Hanover’s bank credit facility of $10.2 million as of December 31, 2003.

Maturities of long-term debt (excluding interest to be accrued thereon) at December 31, 2003 are (in thousands):

In December 2003, we issued under our shelf registration statement $200.0 million aggregate principal amount of our 8.625% Senior Notes due 2010, which are fully and unconditionally guaranteed on a senior subordinated basis by HCLP. The net proceeds from this offering were used to repay the outstanding indebtedness and minority interest obligations of $194.0 million and $6.0 million, respectively, under our 1999A equipment lease that was to expire in June 2004.

In December 2003, we entered into a new $350 million bank credit facility having a maturity date of December 29, 2006 and made conforming amendments related to the compression equipment lease obligations that we entered into in 2000. Our prior $350 million bank credit facility that was scheduled to mature in November 2004, was terminated upon closing of the new facility. The new bank credit facility modified certain covenants that were contained in the prior facility and eliminated certain covenants entirely. The new agreement prohibits us (without the lenders’ prior approval) from declaring or paying

any dividend (other than dividends payable solely in our common stock or in options, warrants or rights to purchase such common stock) on, or making similar payments with respect to, our capital stock. The new agreement clarifies and provides certain thresholds with respect to our ability to make investments in our foreign subsidiaries. In addition, under the new agreement, we granted the lenders a security interest in the inventory, equipment and certain other property of Hanover and its domestic subsidiaries (with certain exceptions), and pledged 66% of the equity interest in certain of our foreign subsidiaries.

Our new bank credit facility provides for a $350 million revolving credit in which advances bear interest at (a) the greater of the administrative agent’s prime rate, the federal funds effective rate, or the base CD rate, or (b) a eurodollar rate, plus, in each case, a specified margin (4.2% weighted average interest rate at December 31, 2003). A commitment fee equal to 0.625% times of the average daily amount of the available commitment under the bank credit facility is payable quarterly to the lenders participating in the bank credit facility. Our bank credit facility contains certain financial covenants and limitations on, among other things, indebtedness, liens, leases and sales of assets.

As of December 31, 2003, we had approximately $27 million in borrowings and approximately $77.1 million in letters of credit outstanding on our bank credit facility (4.2% weighted average effective rate at December 31, 2003). Our bank credit facility permits us to incur indebtedness, subject to covenant limitations described above, up to a $350 million credit limit, plus, in addition to certain other indebtedness, an additional (i) $40 million in unsecured indebtedness, (ii) $50 million of nonrecourse indebtedness of unqualified subsidiaries and (iii) $25 million of secured purchase money indebtedness.

As of December 31, 2003, we were in compliance with all material covenants and other requirements set forth in our bank credit facility, agreements related to our compression equipment lease obligations and indentures. Giving effect to the covenant limitations in our bank credit facility, the liquidity available under that facility as of December 31, 2003 was approximately $223 million. A default under our bank credit facility or these agreements would trigger cross-default provisions under the agreements relating to certain of our other debt obligations. Such defaults would have a material adverse effect on our liquidity, financial position and operations.

In addition to purchase money and similar obligations, the indentures and the agreements related to our compression equipment lease obligations for our 2001A and 2001B sale leaseback transactions and our 8.625% Senior Notes due 2010 permit us to incur indebtedness up to the $350 million credit limit under our bank credit facility, plus (1) an additional $75 million in unsecured indebtedness and (2) any additional indebtedness so long as, after incurring such indebtedness, our ratio of the sum of consolidated net income before interest expense, income taxes, depreciation expense, amortization of intangibles, certain other non-cash charges and rental expense to total fixed charges (all as defined and adjusted by the agreements), or our “coverage ratio,” is greater than 2.25 to 1.0 and no default or event of default has occurred or would occur as a consequence of incurring such additional indebtedness and the application of the proceeds thereon. The indentures and agreements for our 2001A and 2001B sale leaseback transactions define indebtedness to include the present value of our rental obligations under sale leaseback transactions and under facilities similar to our compression equipment operating leases. As of December 31, 2003, Hanover’s coverage ratio was less than 2.25 to 1.0 and therefore as of such date we could not incur indebtedness other than under our bank credit facility and up to an additional $75 million in unsecured indebtedness and certain other permitted indebtedness, including certain refinancing indebtedness.

In January 2003, we gave notice of our intent to exercise our right to put our interest in the PIGAP II joint venture back to Schlumberger. If not exercised, the put right would have expired as of February 1, 2003. Hanover acquired its interest in PIGAP II as part of its purchase of POC from Schlumberger in August 2001. On May 14, 2003, we entered into an agreement with Schlumberger to

terminate our right to put our interest in the PIGAP II joint venture to Schlumberger. As a result, we retained our ownership interest in PIGAP II. We also agreed with Schlumberger to restructure the $150 million subordinated note that Schlumberger received from us in August 2001 as part of the purchase price for the acquisition of POC.

A comparison of the primary financial terms of the original $150 million subordinated note and the restructured note are shown in the table below.

As of March 31, 2003, the date from which the interest rate was adjusted, the $150 million subordinated note had an outstanding principal balance of approximately $171 million, including accrued interest. Under the restructured terms, the maturity of the restructured notes have been extended to March 31, 2007, from the original maturity of December 31, 2005. The notes are zero coupon notes with original issue discount accreting at 11.0% for its remaining life, up to a total principal amount of $262.6 million payable at maturity. The notes will accrue additional interest at a rate of 2.0% per annum upon the occurrence and during the continuance of an event of default under the notes. The notes will also accrue additional interest at a rate of 3.0% per annum if our consolidated leverage ratio, as defined in the indenture governing the notes, exceeds 5.18 to 1.0 as of the end of two consecutive fiscal quarters. As of December 31, 2003, we estimate that our debt balance could have increased by approximately $53 million in additional indebtedness and not exceeded the 5.18 to 1.0 ratio. Notwithstanding the foregoing, the notes will accrue additional interest at a rate of 3.0% per annum if both of the previously mentioned circumstances occur. The notes also contain a covenant that limits our ability to incur additional indebtedness if Hanover’s consolidated leverage ratio exceeds 5.6 to 1.0, subject to certain exceptions. Schlumberger will no longer have a first call on any proceeds from the issuance of any shares of capital stock or other equity interests by Hanover and the notes are not callable by Hanover until March 31, 2006. As agreed upon with Schlumberger, Hanover has agreed to bear the cost of and has registered these notes with the Securities and Exchange Commission (“SEC”) covering the resale of the restructured notes by Schlumberger. The registration process was completed in December 2003 and the notes were sold by Schlumberger and we incurred $0.8 million in registration expenses.

Also on May 14, 2003, we agreed with Schlumberger Surenco, an affiliate of Schlumberger, to the modification of the repayment terms of a $58.0 million obligation that was accrued as a contingent liability on our balance sheet since the acquisition of POC and was associated with the PIGAP II joint venture. The obligation was converted into a non-recourse promissory note (“PIGAP Note”) payable by Hanover Cayman Limited, our indirect wholly-owned consolidated subsidiary, with a 6% interest rate compounding semi-annually until maturity in December 2053. In October 2003, the PIGAP II joint venture closed on the project’s financing and distributed approximately $78.5 million to Hanover, of which approximately $59.9 million was used to repay the PIGAP Note.

For financial accounting purposes, the above described changes to the restructured subordinated note and PIGAP Note were not considered an extinguishment of debt, but have been accounted for as debt modifications which resulted in no income or expense recognition related to the transaction.

In December 2003, we issued under our shelf registration statement $143.8 million aggregate principal amount of our 4.75% convertible senior notes due 2014. We may redeem these convertible notes beginning in 2011, subject to certain conditions. The convertible notes are convertible into shares of our common stock at an initial conversion rate of 66.6667 shares of our common stock per $1,000 principal amount of the convertible notes (subject to adjustment in certain events, some of which may result in the triggering of a beneficial conversion feature) at any time prior to the stated maturity of the convertible notes or the redemption or repurchase of the convertible notes by us. The proceeds from this offering were used to repay a portion of the outstanding indebtedness under our bank credit facility. The fair value of the 2014 convertible senior notes is approximately $160.5 million at December 31, 2003.

In March 2001, we issued $192.0 million principal amount of 4.75% convertible senior notes due 2008. The notes mature on March 2008 and are subject to call beginning on March 2004. The notes are convertible into shares of our common stock at a conversion price of approximately $43.94 per share (subject to adjustment in certain events, some of which may result in the triggering of a beneficial conversion feature) at any time prior to the stated maturity of the convertible notes or the redemption or repurchase of the convertible notes by us. We received approximately $185.5 million of proceeds from the sale, net of underwriting and offering costs. The fair value of the 2008 convertible senior notes is approximately $178.6 million at December 31, 2003.

In December 1999, we issued $86.3 million of unsecured mandatorily redeemable convertible preferred securities through Hanover Compressor Capital Trust, a Delaware business trust and wholly-owned finance subsidiary of Hanover. The convertible preferred securities have a liquidation amount of $50 per unit. The convertible preferred securities mature in 30 years but we may redeem them partially or in total any time on or after December 20, 2002. The convertible preferred securities also provide for annual cash distributions at the rate of 7.25%, payable quarterly in arrears; however, payments may be deferred up to 20 quarters subject to certain restrictions. We recorded approximately $6.3 million, during 2003, 2002 and 2001, for distributions related to convertible preferred securities. Each convertible preferred security is convertible into 2.7972 shares of Hanover common stock, subject to certain conditions. We have fully and unconditionally guaranteed the convertible preferred securities. We incurred approximately $3.6 million in transaction costs that are included in other assets, and recorded $0.1 million, $0.1 million and $0.1 million of amortization for December 31, 2003, 2002 and 2001, respectively. The transaction costs are being amortized over the term of the convertible preferred securities. The fair value of the convertible preferred securities is approximately $85.2 million at December 31, 2003.

These securities were previously reported on our balance sheet as mandatorily redeemable convertible preferred securities. Because we only have a limited ability to make decisions about its activities and we are not the primary beneficiary of the trust, the trust is a VIE under FIN 46. As such, the mandatorily redeemable preferred securities issued by the trust are no longer reported on our balance sheet. Instead, we now report our subordinated notes payable to the trust as a debt. These intercompany notes have previously been eliminated in our consolidated financial statements. The changes related to our mandatorily redeemable preferred securities are reclassifications and have no impact on our consolidated results of operations or cash flow. (See Note 22.)

As of December 31, 2003, we are the lessee in four transactions involving the sale of compression equipment by us to special purpose entities, which in turn lease the equipment back to us. At the time we entered into the leases, these transactions had a number of advantages over other sources of capital then available to us. The sale leaseback transactions (1) enabled us to affordably extend the duration of our financing arrangements and (2) reduced our cost of capital.

In October 2000, we completed a $172.6 million sale leaseback transaction of compression equipment. In March 2000, we entered into a separate $200 million sale leaseback transaction involving certain compression equipment. Under the March transaction, we received proceeds of $100 million from the sale of compression equipment at the first closing in March 2000, and in August 2000, we completed the second half of the equipment lease and received an additional $100 million for the sale of additional compression equipment. Under our 2000 lease agreements, the equipment was sold and leased back by us for a five-year term and will be used by us in our business. We have options to repurchase the equipment under the 2000 leases, subject to certain conditions set forth in these lease agreements. The 2000 lease agreements call for variable quarterly payments that fluctuate with the London Interbank Offering Rate and have covenant restrictions similar to our bank credit facility. We incurred an aggregate of approximately $7.1 million in transaction costs for the leases entered into in 2000, which are included in intangible and other assets on the balance sheet and are being amortized over the respective lease terms of the respective transactions.

The following table summarizes as of December 31, 2003 the proceeds, residual guarantee, lease termination date and minority interest obligations for equipment leases (in thousands):

equal to or greater than the value of the equipment that is being substituted. Each lease agreement limits the aggregate amount of replacement equipment that may be substituted to under each lease.

Prior to July 1, 2003, these lease transactions were recorded as a sale and leaseback of the compression equipment and were treated as operating leases for financial reporting purposes. On July 1, 2003, we adopted the provisions of FIN 46 as they relate to the special purpose entities that lease compression equipment to us. As a result of the adoption, we added approximately $1,089 million in compressor equipment assets, $192.3 million of accumulated depreciation (including approximately $58.6 million of accumulated depreciation related to periods before the sale and leaseback of the equipment), $1,105.0 million in debt and $34.6 million in minority interest obligations to our balance sheet, and we reversed $108.8 million of deferred gains that were recorded on our balance sheet as a result of the sale leaseback transactions. On July 1, 2003, we recorded a $133.7 million charge ($86.9 million net of tax) to record the cumulative effect from the adoption of FIN 46 related to prior period depreciation of the compression equipment assets. Additionally, we estimate that we will record approximately $17 million per year in additional depreciation expense on our leased compression equipment as a result of the inclusion of the compression equipment on our balance sheet and will also record the payments made under our compression equipment leases as interest expense.

In connection with the compression equipment leases entered into in August 2001, we were obligated to prepare registration statements and complete an exchange offer to enable the holders of the notes issued by the lessors to exchange their notes with notes registered under the Securities Act of 1933. Because of the restatement of our financial statements, the exchange offer was not completed within the timeframe required by the agreements related to the compression equipment lease obligations and we were required to pay additional lease expense in an amount equal to $105,600 per week until the exchange offering was completed. The additional lease expense began accruing on January 28, 2002 and increased our lease expense by $1.1 million and $5.1 million during 2003 and 2002, respectively. The registration statements became effective in February 2003. The exchange offer was completed and the requirement to pay the additional lease expense ended on March 13, 2003.

The components of income (loss) from continuing operations before income taxes were as follows (in thousands):

The provision for (benefit from) income taxes from continuing operations consisted of the following (in thousands):

The provision for (benefit from) income taxes for 2003, 2002 and 2001 resulted in effective tax rates on continuing operations of (0.7)%, 19.0% and 37.8%, respectively. The reasons for the differences between these effective tax rates and the U.S. statutory rate of 35% are as follows (in thousands):

The foreign effective rate/U.S. rate differential includes the impact of approximately $35.5 million non-deductible goodwill impairment.

Deferred tax assets (liabilities) are comprised of the following (in thousands):

We had U.S. net operating loss carryforwards at December 31, 2003 of approximately $613.0 million expiring in 2004 to 2023. At December 2003, we had an alternative minimum tax credit carryforward of approximately $5.4 million that does not expire. At December 31, 2003, we had approximately $88.0 million of net operating loss carryforwards in certain non-U.S. jurisdictions. Of these, approximately $17.7 million have no expiration date, and the remaining $70.3 million will expire in future years through 2012.

The valuation allowance increased by $31.6 million primarily due to: (1) a $25.7 million valuation allowance recorded for our U.S. deferred tax assets related to our net operating loss carryforward and (2) additional valuation allowances recorded, net, for losses in non-U.S. tax jurisdictions. Realization of deferred tax assets associated with net operating loss carryforwards is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to their expiration. Management believes it is more likely than not that the remaining deferred tax asset, not subject to valuation allowance, will be realized through future taxable income.

We plan to reinvest the undistributed earnings of our foreign subsidiaries of approximately $174 million. Accordingly, U.S. deferred taxes have not been provided on these earnings.

We adopted SFAS 133, effective January 1, 2001. SFAS 133 requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings. Prior to 2001, we entered into two interest rate swaps with notional amounts of $75 million and $125 million and strike rates of 5.51% and 5.56%, respectively. These swaps were to expire in July 2001; however, they were extended for an additional two years at the option of the swap counterparty and expired in July 2003. The difference paid or received on the swap transactions was recorded as an accrued liability and recognized in leasing expense in all periods before July 1, 2003, and in interest expense thereafter. Because management decided not to

designate the interest rate swaps as hedges at the time they were extended by the counterparty, we recognized unrealized gains of approximately $4.1 million and approximately $3.2 million related to the change in the fair value of these interest rate swaps in lease expense in our statement of operations during the years ended December 31, 2003 and 2002, respectively and recognized an unrealized gain of approximately $0.5 million in interest expense in 2003. Prior to July 1, 2003, these amounts were reported as “Change in fair value of derivative financial instruments” in our consolidated statement of operations. We have reclassified these amounts as interest and lease expense to conform to the 2003 financial statement classification. At December 31, 2002, we had approximately $4.6 million in accrued liabilities with respect to the fair value adjustment related to these interest rate swaps. The fair value of these interest rate swaps fluctuated with changes in interest rates over their terms and the fluctuations were recorded in our statement of operations.

During the second quarter of 2001, we entered into three additional interest rate swaps to convert variable lease payments under certain lease arrangements to fixed payments as follows:

These three swaps, which we have designated as cash flow hedging instruments, meet the specific hedge criteria and any changes in their fair values have been recognized in other comprehensive income. During the years ended December 31, 2003, 2002 and 2001, we recorded income of approximately $7.9 million and a loss of $13.6 million and $9.3 million, respectively, related to these three swaps ($5.1 million, $8.9 million, and $6.1 million net of tax) in other comprehensive income. As of December 31, 2003 and December 31, 2002, a total of approximately $11.7 million and $11.5 million, respectively, was recorded in current liabilities and approximately $3.4 million and $11.5 million, respectively, in long-term liabilities with respect to the fair value adjustment related to these three swaps.

In March 2001, we completed a public offering of 2.5 million newly issued shares of Hanover’s common stock. We realized approximately $83.9 million of proceeds from the offering, net of underwriting and offering costs.

Under various stock purchase plans, our employees were eligible to purchase shares of Hanover stock at fair market value in exchange for cash and/or notes receivable. The notes were collateralized by the common stock and the general credit of the employee, bear interest at a prime rate, and were generally payable on demand or at the end of a four-year period. The notes were recorded as a reduction of common stockholders’ equity. Due to the decline in the price of Hanover’s stock which secured a portion of the

notes, during 2002, we recorded a reserve for these notes receivable. During 2003, the notes receivable for loans to employees who were not executive officers were forgiven.

As of December 31, 2003, warrants to purchase approximately 4,000 shares of common stock at $.005 per share were outstanding. The warrants expire in August 2005.

Hanover has employee stock option plans that provide for the granting of options to purchase common shares. The options are generally issued with an exercise price equal to the fair market value on the date of grant and are exercisable over a ten-year period. Options granted typically vest over a three to four year period. No compensation expense related to stock options was recorded in 2003, 2002 and 2001.

In 2003 and 2002, we granted 435,000 and 151,000 restricted shares, respectively, of Hanover common stock to certain employees as part of an incentive compensation plan. The restricted stock grants vest equally over four years. As of December 31, 2003, 512,000 restricted shares were outstanding under our plans. We will recognize compensation expense equal to the fair value of the stock at the date of grant over the vesting period related to these grants. During 2003 and 2002, we recognized $1.2 million and $0.4 million respectively, in compensation expense related to these grants.

The following is a summary of stock option activity for the years ended December 31, 2003, 2002 and 2001:

The following table summarizes significant ranges of outstanding and exercisable options at December 31, 2003:

The weighted-average fair value at date of grant for options where the exercise price equals the market price of the stock on the grant date was $11.41, $13.35 and $25.00 per option during 2003, 2002 and 2001, respectively.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:

Our 401(k) retirement plan provides for optional employee contributions up to the IRS limitation and discretionary employer matching contributions. We recorded matching contributions of $2.6 million, $1.5 million, and $1.1 million during the years ended December 31, 2003, 2002 and 2001, respectively.

Hanover and GKH Investments, L.P. and GKH Private Limited (collectively “GKH”), are parties to a stockholders agreement that provides, among other things, for GKH’s rights of visitation and inspection and our obligation to provide Rule 144A information to prospective transferees of the Common Stock.

GKH and other stockholders (collectively, the “Holders”) who, as of December 31, 2003, together beneficially owned approximately 10% of the outstanding Common Stock, are, together with Hanover, parties to a Third Amended Registration Rights Agreement dated December 5, 1995 (the “GKH Rights Agreement”). The GKH Rights Agreement generally provides that if we propose to register shares of our capital stock or any other securities under the Securities Act of 1933, then upon the request of those Holders owning in the aggregate at least 2.5% of the Common Stock (the “Registrable Securities”) then held by all of the Holders, we will use our reasonable best efforts to cause the Registrable Securities so requested by the Holders to be included in the applicable registration statement, subject to underwriters’ cutbacks. We are required to pay all registration expenses in connection with registrations of Registrable Securities effected pursuant to the GKH Rights Agreement.

William S. Goldberg, who was at the time a Managing Director of GKH Partners, acted as Chief Financial Officer of Hanover during 2001 and into 2002 and served as Vice Chairman of the Board beginning in February 2002. Mr. Goldberg resigned as Chief Financial Officer in February 2002 and resigned as Vice Chairman of the Board and as a member of the Board in August 2002. Mr. Goldberg did not receive cash remuneration from Hanover. We did reimburse GKH Partners for certain travel and related expenses incurred by Mr. Goldberg in connection with his efforts on Hanover’s behalf.

GKH has advised Hanover that it is in the process of dissolving and “winding up” its affairs. On November 12, 2002, GKH informed us that GKH advised its limited partners that it was extending the wind-up process of the partnership for an additional twelve months from January 25, 2003 until January 25, 2004. On December 3, 2002, GKH, as nominee for GKH Private Limited, and GKH Investments, L.P. made a partial distribution of 10.0 million shares out of a total of 18.3 million shares held by GKH to its limited and general partners. As part of the wind-up process, GKH may liquidate or distribute substantially all of its assets, including the remaining shares of the Common Stock owned by GKH, to its partners. (See Note 24.)

In August 2001, Hanover paid a $4.7 million fee to GKH as payment for services rendered in connection with Hanover’s acquisition of POC and related assets. Pursuant to an agreement with GKH which provides for compensation to GKH for services, Hanover paid a management fee of $45,000 per month from November 2001 until the agreement was terminated in February 2002.

Hanover leases certain compression equipment to an affiliate of Cockrell Oil and Gas, LP, which was owned 50% by GKH until January 2001. The lease is on a month-to-month basis. For the year ended 2001, approximately $0.1 million was billed under the lease.

In August 2001, we purchased POC from the Schlumberger Companies (as defined below). Schlumberger Limited (Schlumberger Limited and the Schlumberger Companies, collectively are referred to as “Schlumberger”) owns, directly or indirectly, all of the equity of the Schlumberger Companies. Pursuant to the Lock-Up, Standstill and Registration Rights Agreement, dated as of August 31, 2001 (the “Schlumberger Rights Agreement”), between Schlumberger Technology Company, Camco International Inc., Schlumberger Surenco, S.A., Schlumberger Oilfield Holdings Limited, Operational Services, Inc. (collectively, the “Schlumberger Companies”) and Hanover, Hanover granted to each of the Schlumberger Companies certain registration rights in connection with shares of the Common Stock received by the Schlumberger Companies as consideration in the POC acquisition (the “Hanover Stock”). The registration rights granted to the Schlumberger Companies include (i) the right, subject to certain restrictions, to register the Hanover Stock in any registration of securities initiated by Hanover within the period of time beginning on the third anniversary of the date of the Schlumberger Rights Agreement and ending on the tenth anniversary of the date of the Schlumberger Rights Agreement (such period of time, the “Registration Period”), and (ii) the right, subject to certain restrictions, to demand up to five

registrations of the Hanover Stock within the Registration Period. Hanover is required to pay all registration expenses in connection with registrations of Hanover Stock pursuant to the Schlumberger Rights Agreement. For a period of three years from the date of the Schlumberger Rights Agreement, the Schlumberger Companies are prohibited from, directly or indirectly, selling or contracting to sell any of the Hanover Stock. The Schlumberger Rights Agreement also provides that none of the Schlumberger Companies shall, without Hanover’s written consent, (i) acquire or propose to acquire, directly or indirectly, greater than twenty-five percent (25%) of the shares of Hanover common stock, (ii) make any public announcement with respect to, or submit a proposal for, any extraordinary transaction involving Hanover, (iii) form or join in any group with respect to the matters set forth in (i) above, or (iv) enter into discussions or arrangements with any third party with respect to the matters set forth in (i) above.

Schlumberger has the right under the POC purchase agreement, so long as Schlumberger owns at least 5% of the Common Stock and subject to certain restrictions, to nominate one representative to sit on our Board of Directors. Schlumberger currently has no representative who sits on the Company’s board of directors. For the years ended December 31, 2003, 2002 and 2001, Hanover generated revenues of approximately $0.5 million, $6.0 million, and $1.4 million in business dealings with Schlumberger. In addition, Hanover made purchases of equipment and services of approximately $7.6 million from Schlumberger during 2002.

As part of the purchase agreement entered into with respect to the POC Acquisition, we were required to make a payment of up to $58.0 million plus interest from the proceeds of and due upon the completion of a financing of PIGAP II, a South American joint venture acquired by Hanover from Schlumberger. (See Note 8.) Because the joint venture failed to execute the financing on or before December 31, 2002, Hanover had the right to put its interest in the joint venture back to Schlumberger in exchange for a return of the purchase price allocated to the joint venture, plus the net amount of any capital contributions by us to the joint venture. In January 2003, we gave notice of our intent to exercise our right to put our interest in the joint venture back to Schlumberger. If not exercised, the put right would have expired as of February 1, 2003. (See Note 11.) In May 2003, we agreed with Schlumberger Surenco, an affiliate of Schlumberger, to the modification of the repayment terms of the $58.0 million obligation. The obligation was converted into a non-recourse promissory note with a 6% interest rate compounding semi-annually until maturity in December 2053. In October 2003, the PIGAP II joint venture closed on the project’s financing and distributed approximately $78.5 million to Hanover, of which approximately $59.9 million was used to pay off the PIGAP Note.

In connection with the POC Acquisition, Hanover issued a $150.0 million subordinated acquisition note to Schlumberger, which matured December 15, 2005. The terms of this note was renegotiated in May, 2003. (See Note 11.)

In August 2001, we entered into a five-year strategic alliance with Schlumberger intended to result in the active support of Schlumberger in fulfilling certain of our business objectives. The principal components of the strategic alliance include (1) establishing Hanover as Schlumberger’s most favored supplier of compression, natural gas treatment and gas processing equipment worldwide, (2) Schlumberger’s coordination and cooperation in further developing Hanover’s international business by placing Hanover personnel in Schlumberger’s offices in six top international markets and (3) providing Hanover with access to consulting advice and technical assistance in enhancing its field automation capabilities. During 2003, we received approximately $0.5 million in payments from Schlumberger to reimburse us for our efforts in connection with the alliance.

In January 2002, Hanover advanced cash of $0.1 million to Robert O. Pierce, a former Senior Vice President — Manufacturing and Procurement, in return for a promissory note. The note bore interest at

4.0%, matured on September 30, 2002, and was unsecured. On September 18, 2002, the Board of Directors approved the purchase of 30,054 shares of Hanover common stock from Mr. Pierce at $9.60 per share for a total of $0.3 million. The price per share was determined by reference to the closing price quoted on the New York Stock Exchange on September 18, 2002. The Board of Directors determined to purchase the shares from Mr. Pierce because it was necessary for him to sell shares to repay his loan with Hanover as well as another outstanding loan. The loans matured during a blackout period under our insider trading policy and therefore Mr. Pierce could not sell shares of Hanover stock in the open market to repay the loans. Mr. Pierce’s loan from Hanover was repaid in full in September 2002.

During 2001, we sold equipment totaling approximately $12.0 million to an affiliate of Enron Capital and Trade Resources Corp. During 2001, we learned that Enron had sold its investment in Hanover’s stock and thus is no longer a related party to us.

In exchange for notes, Hanover has loaned approximately $8.9 million to employees, some of who were subject to margin calls, which together with accrued interest were outstanding as of December 31, 2002. In December 2002, Hanover’s Board of Directors eliminated the practice of extending loans to employees and executive officers and there are no loans outstanding with any current executive officer of Hanover. Due to the decline in Hanover’s stock price and other collectibility concerns, we have recorded a charge in other expense to reserve $6.0 million for these employee loans. During 2003, the notes receivable for loans to employees who were not executive officers were forgiven.

In connection with the restatements announced by Hanover in 2002, certain present and former officers and directors have been named as defendants in putative stockholder class actions, stockholder derivative actions and have been involved with the investigation that was conducted by the Staff of the SEC. Pursuant to the indemnification provisions of our certificate of incorporation and bylaws, we paid legal fees on behalf of certain employees, officers and directors involved in these proceedings. In connection with these proceedings, we advanced, on behalf of indemnified officers and directors, during 2003 and 2002, $1.2 million and $1.1 million, respectively, in the aggregate.

During 2002, $0.4 million was advanced on behalf of former director and officer William S. Goldberg; $0.3 million was advanced on behalf of former director and officer Michael J. McGhan; $0.1 million was advanced on behalf of former officer Charles D. Erwin; $0.1 million was advanced on behalf of former officer Joe S. Bradford; $0.1 million was advanced on behalf of directors Ted Collins, Jr., Robert R. Furgason, Rene Huck (former director), Melvyn N. Klein, Michael A. O’Connor (former director), and Alvin V. Shoemaker, who were elected prior to 2002; and $0.1 million was advanced on behalf of directors I. Jon Brumley, Victor E. Grijalva, and Gordon T. Hall who were elected during 2002.

During 2003, $0.3 million was advanced on behalf of former director and officer William S. Goldberg; $0.2 million was advanced on behalf of former director and officer Michael J. McGhan; $0.1 million was advanced on behalf of former officer Charles D. Erwin; $0.1 million was advanced on behalf of former officer Joe S. Bradford; and $0.5 million was advanced on behalf of various employees of the Company.

On July 30, 2003, HCLP entered into a Membership Interest Redemption Agreement pursuant to which its 10% interest in Energy Transfer Group, LLC (“ETG”) was redeemed, and as a result HCLP withdrew as a member of ETG. In consideration for the surrender of HCLP’s 10% membership interest in ETG, pursuant to a Partnership Interest Purchase Agreement dated as of July 30, 2003, subsidiaries of ETG sold to subsidiaries of the Company their entire 1% interest in Energy Transfer Hanover Ventures, L.P. (“Energy Ventures”). As a result of the transaction, the Company now owns, indirectly, 100% of Energy Ventures. The Company’s 10% interest in ETG was carried on the Company’s books for no value. Ted Collins, Jr., a Director of the Company, owned 100% of Azalea Partners, which at the time of the transaction, owned 13% of ETG. We advanced working capital to ETG, for certain costs incurred by ETG for the performance of services relating to Energy Ventures’ power generation business. During the fiscal

year ended December 31, 2003 and 2002, the largest aggregate amount advanced under this arrangement was $0.4 million and $0.4 million, respectively. The advances did not bear interest. At December 31, 2002, we had $0.4 million in advances outstanding to ETG. In 2003 and 2002, ETG billed Hanover $0.5 million and $1.9 million for services rendered to reimburse ETG for expenses incurred on behalf of Energy Ventures during the year. In 2003 and 2002, we recorded sales of approximately $2.8 million and $0.5 million, respectively related to equipment leases and parts sales to ETG.

Michael J. McGhan. Mr. McGhan served as Chief Executive Officer and President of Hanover since October 1991 and served as a director of Hanover since March 1992. Mr. McGhan also served as an officer and director of certain Hanover subsidiaries during his tenure. Mr. McGhan resigned from all positions held with Hanover on August 1, 2002. In 2001, we advanced cash of $2.2 million to Mr. McGhan, in return for promissory notes. The notes bore interest at 4.88%, matured on April 11, 2006, and are collateralized by personal real estate and Hanover common stock with full recourse. 411,914 shares of Hanover Common Stock owned by Mr. McGhan were held secured as collateral for this $2.2 million loan. In May, 2003, Mr. McGhan paid in full the $2.2 million loan together with the applicable accrued interest.

In January 2002, we advanced additional cash of $0.4 million to Mr. McGhan in return for a promissory note. The note bore interest at 4.0% and was repaid in full in September 2002. Set forth below is information concerning the indebtedness of Mr. McGhan to Hanover as of December 31, 2003, 2002 and 2001.

On July 29, 2002, we purchased 147,322 shares of the Common Stock from Mr. McGhan for $8.96 per share for a total of $1.3 million. The price per share was determined by reference to the closing price quoted on the New York Stock Exchange on July 29, 2002. The Board of Directors determined to purchase the shares from Mr. McGhan because he was subject to a margin call during a blackout period under the Hanover insider trading policy, and therefore, could not sell such shares to the public to cover the margin call without being in violation of the policy.

On August 1, 2002, we entered into a Separation Agreement with Mr. McGhan. The agreement sets forth a mutual agreement to sever the relationships between Mr. McGhan and Hanover, including the employment relationships of Mr. McGhan with Hanover and its affiliates. In the agreement, the parties also documented their understandings with respect to: (i) the posting of additional collateral by Mr. McGhan to secure repayment of loans owed by Mr. McGhan to Hanover; and (ii) certain waivers and releases by Mr. McGhan. In the agreement, Mr. McGhan made certain representations as to the status of the outstanding loans payable by Mr. McGhan to Hanover, the documentation for the loans and the enforceability of his obligations under the loan documents. The loans were not modified and must be repaid in accordance with their original terms. In addition, the agreement provided that Mr. McGhan may exercise his vested stock options pursuant to the post-termination exercise periods set forth in the applicable plan. Since the date of the agreement, Mr. McGhan has exercised all such vested stock options and the net shares from such exercise were used as collateral for his outstanding indebtedness to Hanover.

In addition, Mr. McGhan agreed, among other things, not to compete with Hanover and not to solicit Hanover employees or customers under terms described in the agreement for a period of twenty-four months after the effective date of the agreement. In consideration for this non-compete/non-solicitation agreement, Hanover agreed to pay Mr. McGhan $33,333 per month for a period of eighteen months after the effective date of the agreement.

Charles D. Erwin. Mr. Erwin served as Chief Operating Officer of Hanover since April 2001 and served as Senior Vice President — Sales and Marketing since May 2000. Mr. Erwin resigned from these positions on August 2, 2002. In 2000, we advanced $824,087 to Mr. Erwin in return for a promissory note. In 2002 and 2001, according to the terms of the original note, we recorded compensation expense and forgave $207,382 and $145,118 of such indebtedness (which included $42,565 and $62,709 of accrued interest), respectively. The balance of the loan was repaid in full by Mr. Erwin in December 2002. Set forth below is information concerning the indebtedness of Mr. Erwin to Hanover as of December 31, 2002 and 2001:

On August 2, 2002, we entered into a Separation Agreement with Mr. Erwin. The agreement sets forth a mutual agreement to sever the relationships between Mr. Erwin and Hanover, including the employment relationships of Mr. Erwin with Hanover and its affiliates. In the agreement, the parties also documented their understandings with respect to: (i) the posting of additional collateral by Mr. Erwin to secure repayment of an outstanding loan owed by Mr. Erwin to Hanover; (ii) certain waivers and releases by Mr. Erwin; and (iii) the payment of a reasonable and customary finders fee for certain proposals brought to Hanover’s attention by Mr. Erwin during the twenty-four month period after the effective date of the agreement. In the agreement, Mr. Erwin has made certain representations as to the status of an outstanding loan payable by Mr. Erwin to Hanover, the documentation for the loan and the enforceability of his obligations under the loan documents. The loan was not modified and as noted above this note was repaid in full in December 2002. In addition, the agreement provides that Mr. Erwin may exercise his vested stock options pursuant to the post-termination exercise periods set forth in the applicable plan. Since the date of the agreement, Mr. Erwin has exercised all such vested stock options. Mr. Erwin’s non-vested stock options were forfeited as of August 2, 2002. In addition, Mr. Erwin agreed, among other things, not to compete with Hanover and not to solicit Hanover employees or customers under terms described in the agreement for a period of twenty-four months after the effective date of the agreement. In consideration for this non-compete/non-solicitation agreement, Hanover agreed to pay Mr. Erwin $20,611 per month for a period of eighteen months after the effective date of the agreement.

Joe C. Bradford. In August 2002, our Board of Directors did not reappoint Mr. Bradford to the position of Senior Vice President — Worldwide Operations Development, which he held since May 2000. On September 27, 2002, Mr. Bradford resigned his employment with Hanover. In 2000, we advanced $764,961 to Mr. Bradford in return for a promissory note that matures in June 2004. In 2002 and 2001, according to the terms of the note, we recorded compensation expense and forgave $192,504 and $134,706 of such indebtedness (which included $39,512 and $58,210 of accrued interest), respectively. Set forth

below is information concerning the indebtedness of Mr. Bradford to Hanover as of December 31, 2003, 2002 and 2001:

Rent expense, excluding lease payments for the leasing transactions described in Note 12, for 2003, 2002 and 2001 was approximately $5.1 million, $4.1 million, and $4.0 million respectively. Commitments for future minimum rental payments with terms in excess of one year at December 31, 2003 are: 2004 — $4.4 million; 2005 — $2.8 million; 2006 — $2.1 million; 2007 — $1.5 million; 2008 — $1.2 million and $0.6 million thereafter.

Hanover has issued the following guarantees which are not recorded on our accompanying balance sheet (in thousands):


(1)	We have guaranteed the amount included above, which is a percentage of the total debt of this non-consolidated affiliate equal to our ownership percentage in such affiliate. (See Note 8.)

(2)	We have issued guarantees to third parties to ensure performance of our obligations some of which may be fulfilled by third parties.

As part of the POC acquisition purchase price, Hanover may be required to make a contingent payment to Schlumberger based on the realization of certain tax benefits by Hanover through 2016. To date we have not realized any of such tax benefits or made any payments to Schlumberger in connection with them.

asserted various claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sought unspecified amounts of compensatory damages, interest and costs, including legal fees. The court entered an order appointing Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust and others as lead plaintiffs on January 7, 2003 and appointed Milberg, Weiss, Bershad, Hynes & Lerach LLP as lead counsel. On September 5, 2003, lead plaintiffs filed an amended complaint in which they sought relief under Sections 10(b) of the Securities Exchange Act and Section 11 of the Securities Act against Hanover, certain former officers and directors and our auditor, PricewaterhouseCoopers LLP, on behalf of themselves and the class of persons who purchased Hanover securities between May 4, 1999 and December 23, 2002.

In the securities action, the plaintiffs allege generally that the defendants violated the federal securities laws by making misstatements and omissions in our periodic filings with the SEC as well as in other public statements in connection with the transactions that were restated in 2002.

On October 2, 2003, the Harbor Finance Partners derivative lawsuit was consolidated into the Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust securities class action.

Kirkley v. Hanover, Case No. H-03-1155; Angleopoulos v. Hanover, Case No. H-03-1064; and Freeman v. Hanover, Case No. H-03-1095. On August 1, 2003, the three ERISA class actions were consolidated into the Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust federal securities class action. On October 9, 2003, a consolidated amended complaint was filed by the plaintiffs in the ERISA class action against Hanover, Michael McGhan, Michael O’Connor and William Goldberg, which included the same allegations as indicated above, and was filed on behalf of themselves and a class of persons who purchased or held Hanover securities in their 401(k) Plan between May 4, 1999 and December 23, 2002.

On October 23, 2003, we entered into a Stipulation of Settlement, which settled all of the claims underlying the putative securities class action, the putative ERISA class action and the shareholder derivative actions described above. The terms of the settlement provided for us to: (1) make a cash payment of approximately $30 million (of which $26.7 million was funded by payments from Hanover’s directors and officers insurance carriers), (2) issue 2.5 million shares of our common stock, and (3) issue a contingent note with a principal amount of $6.7 million. The note is payable, together with accrued interest, on March 31, 2007 but will be extinguished (with no money owing under it) if our common stock trades at or above the average price of $12.25 per share for 15 consecutive trading days at any time between March 31, 2004 and March 31, 2007. In addition, upon the occurrence of a change of control that involves us, if the change of control or shareholder approval of the change of control occurs before February 9, 2005 which is twelve months after final court approval of the settlement, we will be obligated to contribute an additional $3 million to the settlement fund. As part of the settlement, we have also agreed to implement corporate governance enhancements, including allowing shareholders owning more than 1% but less than 10% of our outstanding common stock to participate in the process to appoint two independent directors to our board of directors (pursuant to which on February 4, 2004 we appointed Margaret K. Dorman and Stephen M. Pazuk to our board of directors) and making certain changes to our code of conduct.

GKH which, as of December 31, 2003, together owned approximately 10% of Hanover’s outstanding common stock and which sold shares in our March 2001 secondary offering of common stock, are parties to the settlement and have agreed to settle claims against them that arise out of that offering as well as other potential securities, ERISA, and derivative claims. The terms of the settlement provide for GKH to transfer 2.5 million shares of Hanover common stock from their holdings or from other sources to the settlement fund.

On October 24, 2003, the parties moved the United States District Court for the Southern District of Texas for preliminary approval of the proposed settlement and sought permission to provide notice to the potentially affected persons and to set a date for a final hearing to approve the proposed settlement. On December 5, 2003, the court held a hearing and granted the parties’ motion for preliminary approval of the proposed settlement and, among other things, ordered that notice be provided to appropriate persons and set the date for the final hearing. The final hearing was held on February 6, 2004, and no objections to the settlement or requests to be excluded from the terms of the settlement, had been received prior to the deadline set by the court.

actions other than the Coffelt Family derivative action filed in the Delaware Chancery Court. The court also entered an Order and Final Judgment approving the plans of allocation with respect to each action, as well as an Order and Final Judgment approving the schedule of attorneys’ fees for counsel for the settling plaintiffs. The time in which these Orders and Final Judgments may be appealed expired on March 10, 2004 without any appeal being lodged. In addition, on March 16, 2004, the Delaware Chancery Court dismissed the Coffelt Family derivative action. The settlement has therefore become final and will be implemented according to its terms. In March 2004, we issued and delivered to the escrow agent for the settlement fund 2.5 million shares of Hanover common stock, as required by the settlement. Our independent auditor, PricewaterhouseCoopers, is not a party to the settlement and remains a party to the securities class action.

As of December 31, 2003, our accompanying balance sheet includes a $33.4 million long-term liability and $32.7 million in accrued liabilities related to amounts that are expected to be paid in the next twelve months. During the second quarter of 2003, the $26.7 million receivable from the insurance carriers and $2.8 million of our portion of the cash settlement was paid into an escrow fund and is included in the accompanying balance sheet as restricted cash. In the first quarter of 2004, we will reclassify $29.8 million, the value accrued for the stock to be paid, from other liabilities to stockholders’ equity and will include the shares in our outstanding shares used for earnings per share calculations.

On November 14, 2002, the SEC issued a Formal Order of Private Investigation relating to the transactions underlying and other matters relating to the restatements of our financial statements. In December 2003, we entered into a settlement with the SEC. Without admitting or denying any of the SEC’s findings, we consented to the entry of a cease and desist order requiring future compliance with certain periodic reporting, record keeping and internal control provisions of the securities laws. The settlement did not impose any monetary penalty on us, and required no additional restatements of our historical financial statements.

For the year ended December 31, 2003, other expenses included $2.9 million in charges primarily recorded to write off certain non-revenue producing assets and to record the settlement of a contractual obligation.

For the year ended December 31, 2002, other expenses included $15.9 million of write-downs and charges related to investments in four non-consolidated affiliates that had experienced a decline in value that we believed to be other than temporary, a $0.5 million write-off of a purchase option for an acquisition that we had abandoned, $2.7 million in other non-operating costs and a $8.5 million write-down of notes receivable including a $6.0 million reserve established for loans to employees who were not executive officers. During 2003, the notes receivable for loans to employees who were not executive officers were forgiven.

For the year ended December 31, 2001, other expenses were $9.7 million which included a $2.8 million bridge loan commitment fee associated with Hanover’s acquisition of POC, a $5.0 million write-down of an investment in Aurion, a $1.0 million litigation settlement and $1.0 million in other non-operating expenses.

Included in the net loss for 2003 were the following pre-tax charges (in thousands):

Included in the net loss for 2002 were the following pre-tax charges (in thousands):

In June 2001, the FASB issued SFAS 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets” (“SFAS 143”). SFAS 143 establishes the accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 became effective for Hanover on January 1, 2003. The adoption of this new standard did not have a material effect on our consolidated results of operations, cash flows or financial position.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of the provisions of this interpretation did not have a material effect on our consolidated results of operations, cash flow or financial position.

In January 2003, the FASB issued FIN 46. The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved by means other than through voting rights and the determination of when and which business enterprise should consolidate the VIE in its financial statements. FIN 46 applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. As revised, FIN 46 was effective immediately for VIE’s created after January 31, 2003. For special-purposes entities created prior to February 1, 2003, FIN 46 is effective at the first interim or annual reporting period ending after December 15, 2003, or December 31, 2003 for us. For entities, other than special purpose entities, created prior to February 1, 2003, FIN 46 is effective for us as of March 31, 2004. In addition, FIN 46 allows companies to elect to adopt early the provisions of FIN 46 for some, but not all, of the variable interest entities they own. Because we are still evaluating whether or not we will make any other potential changes in connection with our adoption of FIN 46, we have not adopted the provisions of FIN 46 other than discussed below.

We have a consolidated subsidiary trust that has mandatorily redeemable preferred securities outstanding which have a liquidation value of $86.3 million. These securities were previously reported on our balance sheet as mandatorily redeemable convertible preferred securities. Because we only have a limited ability to make decisions about its activities and we are not the primary beneficiary of the trust, the trust is a VIE under FIN 46. As such, the mandatorily redeemable preferred securities issued by the trust

are no longer reported on our balance sheet. Instead, we now report our subordinated notes payable to the trust as a debt. These intercompany notes have previously been eliminated in our consolidated financial statements. The changes related to our mandatorily redeemable preferred securities for our balance sheet are reclassifications and no impact on our consolidated results of operations or cash flow.

We manage our business segments primarily based upon the type of product or service provided. We have five principal industry segments: Domestic Rentals; International Rentals; Parts, Service and Used Equipment; Compressor and Accessory Fabrication; and Production and Processing Equipment Fabrication. The Domestic and International Rentals segments primarily provide natural gas compression and production and processing equipment rental and maintenance services to meet specific customer requirements on Hanover-owned assets. The Parts, Service and Used Equipment segment provides a full range of services to support the surface production needs of customers from installation and normal maintenance and services to full operation of a customer’s owned assets and surface equipment as well as sales of used equipment. The Compressor and Accessory Fabrication Segment involves the design, fabrication and sale of natural gas compression units and accessories to meet unique customer specifications. The Production and Processing Equipment Fabrication Segment designs, fabricates and sells equipment used in the production and treating of crude oil and natural gas and engineering, procurement and construction of heavy wall reactors for refineries and desalination plants.

We evaluate the performance of our segments based on segment gross profit. Segment gross profit for each segment includes direct operating expenses. Costs excluded from segment gross profit include selling, general and administrative, depreciation and amortization, leasing, interest, foreign currency translation, provision for cost of litigation settlement, goodwill impairment, other expenses and income taxes. Amounts defined as “Other” include equity in income of non-consolidated affiliates, results of other insignificant operations and corporate related items primarily related to cash management activities. Revenues include sales to external customers and intersegment sales. Intersegment sales are accounted for at cost, except for compressor fabrication sales which are accounted for on an arms length basis. Intersegment sales and any resulting profits are eliminated in consolidation. Identifiable assets are tangible and intangible assets that are identified with the operations of a particular segment or geographic region, or which are allocated when used jointly.

No individual customer accounted for more than 10% of our consolidated revenues during any of the periods presented.

The following tables present sales and other financial information by industry segment and geographic region for the years ended December 31, 2003, 2002 and 2001.

(1)

International operations include approximately $122.8 million, $104.0 million and $77.2 million of revenues and $348.2 million, $431.0 million and $467.8 million of identifiable assets for 2003, 2002 and 2001, respectively, related to operations and investments in Venezuela. Approximately $79.4 million, $141.0 million and $152.4 million of the identifiable assets in 2003, 2002 and 2001, respectively, relates to the joint ventures acquired in connection with the POC acquisition completed in August 2001. (See Note 8).

On February 9, 2004, the United States District Court for the Southern District of Texas entered three Orders and Final Judgments, approving the securities related settlement on the terms agreed upon in the Stipulation of Settlement with respect to all of the claims described in Note 19. The court also entered an Order and Final Judgment approving the plans of allocation with respect to each action, as well as an Order and Final Judgment approving the schedule of attorneys’ fees for counsel for the settling plaintiffs. The time in which these Orders and Final Judgments may be appealed expired on March 10, 2004 without any appeal being lodged. The settlement has therefore become final and will be implemented according to its terms. In March 2004, we issued and delivered to the escrow agent for the settlement fund 2.5 million shares of Hanover common stock, as required by the settlement. See Note 19 for further information related to the settlement.

On March 5, 2004, we sold our 50.384% limited partnership interest and 0.001% general partnership interest in Hanover Measurement Services Company, L.P. to EMS Pipeline Services, L.L.C. for $4.9 million, of which $0.2 million has been put in escrow subject to the outcome of post closing working capital adjustments. We have no obligation to the purchaser with respect to any post-closing adjustment in excess of the escrowed amount. We accounted for our interest in Hanover Measurement under the equity method.

The table below sets forth selected unaudited financial information for each quarter of the two years:


(1)	During, the first quarter of 2003, we recorded a $42.1 million estimated provision for the estimated settlement of securities litigation that was subsequently adjusted to $43.0 million. During the third quarter of 2003, we recorded a $35.5 million goodwill impairment, $14.3 million rental fleet impairment, $16.8 million write-down of discontinued operations and $133.7 million cumulative effect of accounting change for the adoption of FIN 46. During the fourth quarter of 2003, we recorded a $2.5 million write-off of deferred financing costs and $2.3 million write-down of discontinued operations.

(2)	During the second quarter of 2002, we recorded a $47.5 million goodwill impairment, $6.0 million write-down of assets held for sale, a $6.1 million inventory reserve, a $0.5 million write off of a purchase option for an acquisition which was abandoned and $14.1 million write-down related to investments in certain non-consolidated affiliates. We incurred other expenses during the fourth quarter of 2002 which included a $8.5 million write-down of notes receivable and a $1.9 million write off related to Aurion. In addition, during the fourth quarter of 2002, we recorded i) $52.3 million pre-tax charge for the estimated loss in fair-value from the carrying value expected to be realized at the time of disposal of our discontinued operations; ii) $34.5 million in additional impairment to reduce the carrying value of certain idle compression equipment that are being retired and the acceleration of depreciation related to certain plants and facilities expected to be sold or abandoned; iii) $4.6 million goodwill impairment related to our pump division which is expected to be sold; and iv) $2.7 million in employee separation costs.

(3)

During the performance of our annual goodwill impairment review in the fourth quarter of 2003, we determined the present value of Belleli’s expected future cash flows was less than our carrying value of Belleli. This resulted in a full impairment charge for the $35.5 million in goodwill associated with Belleli. Upon further analysis, it was determined that the factors resulting in the goodwill impairment charge were also present during the third quarter of 2003 and that the exercise of our purchase option in the third quarter of 2003 and the presence of such factors should have resulted in an interim goodwill impairment test under SFAS 142 and an impairment charge at that time. Our financial results previously reported for the third quarter of 2003 did not include the impairment charge. (See Note 2). The results included in the above table have been adjusted to reflect the $35.5 million impairment charge in our third quarter results. The table below indicates the impact of this adjustment (in thousands):


(1)	Uncollectible accounts written off, net of recoveries.

(2)	Obsolete inventory written off at cost, net of value received.

(3)	Reflects utilization of prior year valuation allowance in the current year.

(4)	During 2003, the notes receivable for loans to employees who were not executive officers were forgiven.

†† Management contract or compensatory plan or arrangement EX-3.4 3 h12863exv3w4.txt AMENDED BYLAWS EXHIBIT 3.4 AMENDED AND RESTATED BYLAWS (AS OF MARCH 10, 2004) OF HANOVER COMPRESSOR COMPANY HOUSTON, TEXAS AMENDED AND RESTATED BYLAWS OF HANOVER COMPRESSOR COMPANY (A DELAWARE CORPORATION) ARTICLE I OFFICES SECTION 1.1 The corporation shall maintain a registered office in the State of Delaware as required by law. The corporation may also have such other offices, either within or without the State of Delaware, as the business of the corporation may require. ARTICLE II STOCKHOLDERS SECTION 2.1 ANNUAL MEETING. An annual meeting of the stockholders shall be held commencing in 2000 on (a) the third Thursday of May of each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, or (b) such other day as may be specified by the board of directors, for the election of directors and for the transaction of such other business as may come before the meeting. SECTION 2.2 SPECIAL MEETINGS. Special meetings of the stockholders may be called by the President, the board of directors, or by a request in writing from the holders of not less than 10% of the issued and outstanding voting stock of the corporation. Within ten days after the receipt of such a written request, the President or another officer designated by the President must send a notice of meeting in accordance with section 2.4 hereof. SECTION 2.3 PLACE OF MEETING. The board of directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If a special meeting be called otherwise than by the board of directors, the place of meeting must be in the county of New Castle, State of Delaware. SECTION 2.4 NOTICE OF MEETING. Written notice stating the place, date and hour of the meeting, the place where the stockholder list may be examined prior to the meeting, if different from the place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given in person or sent by mail or overnight express service not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger or consolidation of the corporation requiring stockholder approval or a sale, lease or exchange of all or substantially all of the corporation's assets, not less than twenty nor more than sixty days before the date of meeting, to each stockholder of record entitled to vote at 2 such meeting. If mailed, notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the corporation. If notice is given by overnight express service, such notice shall be deemed given one day after delivery to such express service. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than thirty days, or unless, after adjournment, a new record date is fixed for the adjourned meeting, in either of which cases notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by such stockholder either before or after any meeting. Attendance by a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting need be specified in any waiver of notice of such meeting. SECTION 2.5 FIXING OF RECORD DATE. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the Delaware General Corporation Law, the record date for determining stockholders entitled to consent to 3 corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. SECTION 2.6 VOTING LISTS. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and number of shares registered in his name, which list, for a period of ten days prior to such meeting, shall be kept on file either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and shall be open to the examination of any stockholder, for any purpose germane to the meeting, at any time during ordinary business hours. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.7 STOCK LEDGER. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 2.8 QUORUM. A majority of the outstanding shares of voting stock of the corporation, represented in person or by proxy, shall constitute a quorum at any meeting of stockholders; provided, however, that if less than a majority of the outstanding shares of voting stock are represented at said meeting, a majority of the shares of voting stock so represented may adjourn the meeting. If a quorum is present, the affirmative vote of a majority of the shares of voting stock represented at the meeting shall be the act of the stockholders in all matters other than the election of directors, who shall be elected by a plurality of the votes of the shares present in person or by proxy and entitled to vote on the election of directors, unless the vote of a greater number or voting by classes is required by the Delaware General Corporation Law, the certificate of incorporation or these bylaws. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. Requirements of notice at any adjourned meeting are governed by Section 2.4 hereof. Withdrawal of stockholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. SECTION 2.9 PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Every proxy must be 4 signed by the stockholder or his attorney-in-fact. A duly executed proxy shall be irrevocable if it states that it is irrevocable, and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. SECTION 2.10 VOTING OF STOCK. Subject to the provisions of the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of the voting stock held by such stockholder. SECTION 2.11 VOTING OF STOCK BY CERTAIN HOLDERS. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent such stock and vote thereon. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor counted for quorum purposes, but shares of its stock held by the corporation in a fiduciary capacity may be voted by it and counted for quorum purposes. SECTION 2.12 CONSENT OF STOCKHOLDERS. (a) Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office in Delaware shall be by hand or by certified or registered mail, return receipt requested. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this section to the corporation, written consents signed by a sufficient number of holders to take such action are delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office in Delaware shall be by hand or by certified or registered mail, return receipt requested. (c) Prompt notice of the taking of any corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented thereto in writing. 5 SECTION 2.13 VOTING BY BALLOT. Voting in any election of directors may, if permitted by the certificate of incorporation, be by voice vote, and voting on any other question shall be by voice vote unless, in each case, the presiding officer shall order or any stockholder shall demand that voting be by ballot. SECTION 2.14 INSPECTORS. The board of directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, or upon the request of any stockholder shall, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him, her or them and execute a certificate of any fact found by him, her or them. ARTICLE III DIRECTORS SECTION 3.1 GENERAL POWERS. The business of the corporation shall be managed by or under the direction of its board of directors, except as otherwise provided in the certificate of incorporation. SECTION 3.2 NUMBER AND QUALIFICATIONS. The number of directors of the corporation shall be seven or such other number as may be determined from time to time by the board of directors of the corporation at a duly held meeting thereof. Directors need not be stockholders of the corporation, citizens of the United States or residents of the State of Delaware. SECTION 3.3 ELECTION AND TERM. The board of directors shall be elected at the annual meeting of the stockholders of the corporation and shall hold office until their successors are elected and qualified or until their earlier death, resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier death, resignation or removal. In the interim between annual meetings of stockholders or of special meetings of 6 stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the board of directors, including vacancies resulting from the removal of directors, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. SECTION 3.4 REGULAR MEETINGS. A regular meeting of the board of directors shall be held without other notice than this bylaw, immediately after, and at the same place as, the annual meeting of stockholders. Meetings of the board of directors may be held either within or without the State of Delaware. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. SECTION 3.5 SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the President or any director. The person or persons calling such special meeting of the board of directors shall fix a place, either within or without the State of Delaware, as the place for holding such special meeting of the board of directors. SECTION 3.6 NOTICE. Notice of any special meeting stating the time and place of such meeting shall be given at least three days previous thereto by written notice delivered personally or sent by mail or overnight express service to each director at his business address. Such notice shall be deemed to be delivered when deposited in the United States mail or given to such overnight express service so addressed, with postage thereon prepaid. Notice need not be given to any director who submits a written waiver of notice signed by him either before or after any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of such meeting. SECTION 3.7 QUORUM. A majority of the number of directors fixed by or determined in accordance with these bylaws (or of the members of any committee in the case of a meeting of a committee of the board of directors) shall constitute a quorum for the transaction of business at any meeting of the board of directors or of such committee, provided, however, that if less than a majority of such number of directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee thereof SECTION 3.8 MANNER OF ACTING. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors or of a committee of the board, as the case may be. SECTION 3.9 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all the members of the board or committee, as the case may be, consent 7 thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. SECTION 3.10 COMPENSATION. The board of directors shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. SECTION 3.11 LIABILITY FOR UNLAWFUL PAYMENT OF DIVIDEND. In case of any willful or negligent violation of the provisions of sections 160 or 173 of the Delaware General Corporation Law regarding the payment of dividends, any director who may have been absent when the same was done, or who may have dissented from the act or resolution by which the same was done, may exonerate himself from such liability by causing his dissent to be entered on the books containing the minutes of the proceedings of the directors at the time the same was done, or immediately after he has notice of the same. SECTION 3.12 TELEPHONE MEETINGS. Members of the board of directors or of any committee thereof may participate in a meeting of the board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. SECTION 3.13 REMOVAL. Any director or the entire board of directors may be removed with or without cause by the holders of a majority of the shares then entitled to vote at an election of directors. SECTION 3.14 COMMITTEES. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, to the extent permitted under the Delaware General Corporation Law. SECTION 3.15 RETIREMENT AGE. No person shall be nominated for election to the board of directors after his seventy-second (72nd) birthday. ARTICLE IV OFFICERS SECTION 4.1 NUMBER. The officers of the corporation shall be a President, a Treasurer, a Secretary, and such Vice Presidents, Assistant Treasurers, Assistant Secretaries or other officers as may be elected by the board of directors. Any two or more offices may be held by the same person. SECTION 4.2 ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors 8 held after each annual meeting of stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. New offices may be created and filled at any meeting of the board of directors. Each officer shall hold office until his successor is elected and has qualified or until his earlier death, resignation or removal. Any officer may resign at any time upon written notice to the corporation. Election of an officer shall not of itself create contract rights. SECTION 4.3 REMOVAL. Any officer elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4.4 VACANCIES. A vacancy in any office occurring because of death, resignation, removal or otherwise, may be filled by the board of directors. SECTION 4.5 THE PRESIDENT. The President shall be the chief executive officer of the corporation and, subject only to the board of directors, shall have general authority over, and general management and control of, the property, business and affairs of the corporation. The President shall preside at all meetings of the stockholders and of the board of directors. The President shall have authority to vote all shares of stock of any other corporation standing in the name of the corporation, at any meeting of the stockholders of such other corporation or by written consent of the stockholders of such other corporation, and may, on behalf of the corporation, waive any notice of the calling of any such meeting, and may give a written proxy in the name of the corporation to vote any or all shares of stock of such other corporation owned by the corporation at any such meeting. The President shall perform such other duties as may be prescribed by the board of directors from time to time. SECTION 4.6 THE VICE PRESIDENTS. Each of the Vice Presidents, if any, shall report to the President or such other officer as may be determined by the board of directors. Each Vice President shall have such duties and responsibilities as from time to time may be assigned to him by the President or the board of directors. SECTION 4.7 THE TREASURER. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article V of these bylaws; (b) in general, perform all the duties incident to the office of the treasurer and such other duties as may from time to time be assigned to him by the President or the board of directors. In the absence of the Treasurer, or in the event of his incapacity or refusal to act, or at the direction of the Treasurer, any Assistant Treasurer may perform the duties of the Treasurer. SECTION 4.8 THE SECRETARY. The Secretary shall: (a) record all the proceedings of the meetings of the stockholders and board of directors in one or more books kept for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation 9 and see that the seal of the corporation is affixed to all certificates for shares of stock, instruments and all other documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these bylaws; (d) keep a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholder; (e) have general charge of the stock transfer books of the corporation and (f) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the President or the board of directors. In the absence of the Secretary, or in the event of his incapacity or refusal to act, or at the direction of the Secretary, any Assistant Secretary may perform the duties of Secretary. ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 5.1 CONTRACTS. Except as otherwise determined by the board of directors or provided in these bylaws, all deeds and mortgages made by the corporation and all other written contracts and agreements to which the corporation shall be a party shall be executed in its name by the President or any Vice President. SECTION 5.2 LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 5.3 CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 5.4 DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors may select. ARTICLE VI CERTIFICATES FOR SHARES OF STOCK AND THEIR TRANSFER SECTION 6.1 CERTIFICATES FOR SHARES OF STOCK. Certificates representing shares of stock of the corporation shall be in such form as may be determined by the board of directors. Such certificates shall be signed by the President or any Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. If any such certificate is manually countersigned by a transfer agent other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such 10 certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it my be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificates shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms, indemnity and surety to the corporation as the board of directors may prescribe. SECTION 6.2 TRANSFER OF SHARES OF STOCK. Transfers of shares of stock of the corporation shall be made on the books of the corporation by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. SECTION 6.3 TRANSFER AGENTS AND REGISTRARS. The board of directors may appoint one or more transfer agents or assistant transfer agents and one or more registrars of transfers, and may require all certificates for shares of stock of the corporation to bear the signature of a transfer agent or assistant transfer agent and a registrar of transfers. The board of directors may at any time terminate the appointment of any transfer agent or any assistant transfer agent or any registrar of transfers. ARTICLE VII INDEMNIFICATION SECTION 7.1 DIRECTORS AND OFFICERS. (a) The corporation shall indemnify any person who was or is a party or is threatened to be made party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, manager or officer of another corporation, partnership, joint venture, trust, limited liability company or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with 11 respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, manager or officer of another corporation, partnership, joint venture, trust, limited liability company or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. (c) To the extent that any person referred to in paragraphs (a) and (b) of this Section 7.1 has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to therein or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this section 7.1 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this Section 7.1. Such determination shall be made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (ii) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as provided in this section 7.1. (f) The indemnification and advancement of expenses provided by or granted pursuant to this section 7.1 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 12 (g) The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, manager, officer, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section 7.1. (h) For purposes of this section 7.1, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section. (i) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (j) Unless otherwise determined by the board of directors, references in this section to "the corporation" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, manager, officer, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. SECTION 7.2 EMPLOYEES AND AGENTS. The board of directors may, by resolution, extend the indemnification provisions of the foregoing section 7.1 to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was an employee or agent of the corporation, or is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise. ARTICLE VIII 13 FISCAL YEAR SECTION 8.1 The fiscal year of the corporation shall end on December 31 or on such other date as the board of directors may from time to time determine by resolution. ARTICLE IX DIVIDENDS SECTION 9.1 The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares of stock in the manner and upon the terms and conditions provided by law and its certificate of incorporation. ARTICLE X SEAL SECTION 10.1 The corporate seal of the corporation shall be in the form of a circle and shall have the name of the corporation and the words "Corporate Seal, Delaware" written therein or inscribed thereon. ARTICLE XI WAIVER OF NOTICE SECTION 11.1 Whenever any notice whatever is required to be given under any provision of these bylaws or of the certificate of incorporation or of the Delaware General Corporation Law, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transactions of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders or directors or of a committee of the board of directors need be specified in any written waiver of notice. ARTICLE XII AMENDMENTS SECTION 12.1 These bylaws may be altered, amended or repealed and new bylaws may be adopted at any meeting of the board of directors of the corporation by a majority of the whole board of directors then in office, or by the stockholders. 14 CERTIFICATION I HEREBY CERTIFY that the foregoing is a true and full copy of the bylaws of HANOVER COMPRESSOR COMPANY as the same are now in effect. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of HANOVER COMPRESSOR COMPANY, this the 15th day of March, 2004. /s/ SUSAN MILLER ------------------------ Susan G. Miller Assistant Secretary EX-4.7 4 h12863exv4w7.txt INDENTURE FOR 4.75% CONVERTIBLE SENIOR NOTES Exhibit 4.7 ================================================================================ INDENTURE between HANOVER COMPRESSOR COMPANY and Wilmington Trust Company, as Trustee Dated as of March 15, 2001 Senior Debt Securities ================================================================================

iii

v HANOVER COMPRESSOR COMPANY Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of March 15, 2001

- ---------------- NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. vi INDENTURE, dated as of March 15, 2001, between HANOVER COMPRESSOR COMPANY, a Delaware corporation (herein called the "Company"), having its principal office at 12001 North Houston Rosslyn, Houston, Texas 77086, and WILMINGTON TRUST COMPANY, a banking corporation, not in its individual capacity, but solely as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. ------------ For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, or defined by Commission rule and not otherwise defined herein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (4) the word "including" (and with correlative meaning "include") means including, without limiting the generality of, any description preceding such term; and (5) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. 1 "Act," when used with respect to any Holder, has the meaning specified in Section 1.04. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or 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 Cash Distribution Amount" has the meaning specified in Section 14.03. "Aggregate Current Market Price" has the meaning specified in Section 14.03. "Aggregate Tender Distribution Amount" has the meaning specified in Section 14.03. "Authenticating Agent" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the board of directors of the Company; provided, however, that when the context refers to actions or resolutions of the Board of Directors, then the term "Board of Directors" shall also mean any duly authorized committee of the Board of Directors of the Company or Officer authorized to act with respect to any particular matter to exercise the power of the Board of Directors of the Company. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day," when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or regulation to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, warrants, rights, options or other equivalents (however designated) of capital stock or any other equity interest of such Person, including each class of common stock and preferred stock. "Change in Control" has the meaning specified in Section 12.04. "Closing Price Per Share" has the meaning specified in Section 12.04. 2 "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Depositary" has the meaning specified in Section 3.04. "Common Stock" means the common stock, par value $.001 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 14.04, shares issuable on conversion or repurchase of Securities of any series shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; provided, however, that if at any time there shall be more than one such resulting class, the shares so issuable upon conversion of Securities of any series shall include shares of all such classes, and the shares of each class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Notice" has the meaning specified in Section 12.03. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller, an Assistant Controller, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Conversion Agent" means any Person authorized by the Company to convert Securities of any series in accordance with Article XIV. "Conversion Price" means $1,000 divided by the Conversion Rate. "Conversion Rate" has the meaning specified in Section 14.02. "Corporate Trust Office" means the Corporate Trust Administration office of the Trustee in Wilmington, Delaware at which at any particular time its corporate trust business shall be principally administered. "Covenant Defeasance" has the meaning specified in Section 15.03. "Custodian" means any receiver, custodian, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. 3 "Defaulted Interest" has the meaning specified in Section 3.07. "Defeasance" has the meaning specified in Section 15.02. "Dollars" and "$" means lawful money of the United States of America. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder. "Expiration Time" has the meaning specified in Section 14.03. "GAAP" means such accounting principles as are generally accepted in the United States of America on the date of this Indenture. "Holder" or "Securityholder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01. "Interest," when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date," when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Judgment Currency" has the meaning specified in Section 1.15. "Maturity," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, repurchase or otherwise. "New York Banking Day" has the meaning specified in Section 1.15. "NYSE" means the New York Stock Exchange, Inc. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company. "Officer's Certificate" means a certificate signed by an Officer and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel for the Company, and who shall be reasonably acceptable to the Trustee. 4 "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02. "Outstanding," when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment, redemption or repurchase money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities which have been defeased pursuant to Section 15.02; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (a) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding for such purposes shall be that portion of the principal amount thereof that could be declared to be due and payable upon the occurrence of an Event of Default and the continuation thereof pursuant to the terms of such Original Issue Discount Security as of the date of such determination and (b) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. The Company may act as Paying Agent with respect to any Securities issued hereunder. 5 "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Conversion" has the meaning specified in Section 14.02. "Place of Payment," when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 3.01. "Predecessor Security" of any particular Security of any series means every previous Security of such series evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security of any series authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security of such series shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Redemption Date," when used with respect to any Security of any series to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security of any series to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registered Security" means any Security issued hereunder and registered in the Security Register. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01. "Repurchase Date," when used with respect to any Security of any series to be repurchased at the option of the Holder, means the date fixed for such repurchase by or pursuant to this Indenture. "Repurchase Price," when used with respect to any Security of any series to be repurchased at the option of the Holder, means the price at which it is to be repurchased pursuant to this Indenture. "Required Currency" has the meaning specified in Section 1.15. "Responsible Officer," when used with respect to the Trustee, means any officer of the Corporate Trust Office of the Trustee to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. 6 "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.05. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07. "Stated Maturity," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means, with respect to any Person, (i) any corporation of which at least a majority in interest of the outstanding Capital Stock having by the terms thereof voting power under ordinary circumstances to elect 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 such Person, or by one or more other corporations a majority in interest of such stock of which is similarly owned or controlled or by such Person and one or more other corporations a majority in interest of such stock of which is similarly owned or controlled, or (ii) any other Person (other than a corporation), including a limited or general partnership, limited liability company, business trust or unincorporated association, in which such Person, directly or indirectly, at the date of determination thereof, has at least a majority equity ownership interest. "Trading Day" means (i) if the Common Stock is listed or admitted for trading on any national or regional securities exchange, days on which such national or regional securities exchange is open for business, (ii) if the Common Stock is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of security prices, days on which trades may be effected through such system, or (iii) if the Common Stock is not listed on a national or regional securities exchange or quoted on the National Nasdaq Market or any other system of automated dissemination of quotations of security prices, days on which the Common Stock is traded regular way in the over-the- counter market and for which a closing bid and a closing asked price for the Common Stock are available. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was executed; provided, however, that in the event that such Act is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. 7 "U.S. Depositary" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more permanent global Securities, the Person designated as U.S. Depositary by the Company pursuant to Section 3.01, which must be a clearing agency registered under the Exchange Act, until a successor U.S. Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "U.S. Depositary" shall mean or include each Person who is then a U.S. Depositary hereunder, and if at any time there is more than one such Person, "U.S. Depositary" shall mean the U.S. Depositary with respect to the Securities of that series. "U.S. Government Obligations" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed by the full faith and credit of the United States of America which, in either case, are not callable or redeemable at the option of the issuer thereof or otherwise subject to prepayment, and shall also include a depository receipt issued by a New York Clearing House bank or trust company as custodian with respect to any such U.S. Government Obligation, or a specific payment or interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt or from any amount held by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." SECTION 1.02. Compliance Certificates and Opinions. ------------------------------------ Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and 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. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 8 (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) 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 or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee. --------------------------------------- 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. Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. 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 1.04. Acts of Holders. ---------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders 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 Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. 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 (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. 9 (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 Trustee deems sufficient. (c) The ownership of Registered Securities shall be proved by the Security Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security 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 Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 1.05. Notices, Etc., to Trustee and Company. -------------------------------------- Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: a. the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Trustee Administration, or b. the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office 10 specified in the first paragraph of this Indenture, attention: Secretary, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notice to Holders; Waiver. -------------------------- Where this Indenture or any Security provides for notice to Holders of any event, such notice shall be deemed sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first- class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders or the validity of the proceedings to which such notice relates. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION 1.07. Conflict with Trust Indenture Act. ---------------------------------- If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included or deemed included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, such provision of the Trust Indenture Act shall be deemed to apply to this Indenture as so modified or shall be excluded, as the case may be. SECTION 1.08. Effect of Headings and Table of Contents. ----------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. Successors and Assigns. ----------------------- All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. 11 SECTION 1.10. Separability Clause. -------------------- In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. Benefits of Indenture. ---------------------- Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. -------------- This Indenture and the Securities shall be governed by and construed in accordance with the laws (other than the choice of law provisions) of the State of New York. SECTION 1.13. Legal Holidays. --------------- In any case where any Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or Maturity of any Security shall not be a Business Day at any Place of Payment or Place of Conversion, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made at such Place of Payment or Place of Conversion on such date, but may be made on the next succeeding Business Day or on such other day as may be set out in the Officer's Certificate pursuant to Section 3.01 at such Place of Payment or Place of Conversion with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repurchase Date or at the Stated Maturity or Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or Maturity, as the case may be, if payment is made on such next succeeding Business Day or other day set out in such Officer's Certificate. SECTION 1.14. No Recourse Against Others. --------------------------- A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder, by accepting a Security, waives and releases all such liability. Such waivers and releases are part of the consideration for the issuance of the Securities. SECTION 1.15. Judgment Currency. ------------------ The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in the City of New York 12 the Required Currency with the Judgment Currency on the New York Banking Day preceding that on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in the City of New York or a day on which banking institutions in the City of New York are authorized or required by law or executive order to close. SECTION 1.16. Counterparts. ------------- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. ARTICLE II SECURITY FORMS SECTION 2.01. Forms Generally. ---------------- The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the Officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities. The Trustee's certificates of authentication shall be in substantially the form set forth in this Article. Conversion notices shall be substantially in the form set forth in Section 2.05. Repurchase notices shall be substantially in the form set forth in Section 2.06. 13 The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 2.02. Form of Face of Security. ------------------------- [If the Security is an Original Issue Discount Security, insert--FOR PURPOSES OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), THE AMOUNT OF ORIGINAL ISSUE DISCOUNT (AS DEFINED IN SECTION 1273(a)(1) OF THE CODE AND TREASURY REGULATION SECTION 1.1273-1(a)) WITH RESPECT TO THIS SECURITY IS ______, THE ISSUE DATE (AS DEFINED IN SECTION 1275(a)(2) OF THE CODE AND TREASURY REGULATION SECTION 1.1273-2(a)(2)) OF THIS SECURITY IS ______, THE ISSUE PRICE (AS DEFINED IN SECTION 1273(b) OF THE CODE AND TREASURY REGULATION 1.1273-2(a)) OF THIS SECURITY IS __________, AND THE YIELD TO MATURITY (AS DEFINED IN TREASURY REGULATION SECTION 1.1272-1(b)) OF THIS SECURITY IS ______. 14 HANOVER COMPRESSOR COMPANY -------------------------- No.______ [$] ______ HANOVER COMPRESSOR COMPANY, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _________________, or registered assigns, the principal sum of ___________________ [Dollars] on ________________ [If the Security is to bear interest prior to Maturity, insert--, and to pay interest thereon from ____________________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ______ and ______ in each year, commencing ____________, at the rate of ___ % per annum, until the principal hereof is paid or made available for payment [If applicable insert--, and (to the extent that the payment of such interest shall be legally enforceable) at the rate of ___ % per annum on any overdue principal and premium and on any overdue installment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the _______ or _______ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert--The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of ___% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of ___% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.] 15 Payment of the principal of (and premium, if any) on this Security will [may] be made at the office or agency of the Company maintained for that purpose in __________ , in Dollars [if applicable, insert -- , by Dollar check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by transfer to a Dollar account]. Payment of [if applicable, insert -- any such] interest on this Security will [may] be made at the office or agency of the Company maintained for that purpose in __________ , in Dollars [if applicable, insert -- , by Dollar check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or, upon written application by the Holder to the Security Registrar setting forth wire instructions not later than the relevant Regular Record Date or Special Record Date, as the case may be, by transfer to a Dollar account; provided, however, that transfers to Dollar accounts will be made only to Holders of an aggregate principal amount of Securities in excess of 2,000,000.] Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. HANOVER COMPRESSOR COMPANY [SEAL] By_____________________________ Name: Title: Attest: SECTION 2.03. Form of Reverse of Security. ---------------------------- This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of ______________, 2001 (herein called the "Indenture"), between the Company and Wilmington Trust Company, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [, limited in aggregate principal amount to $_________]. 16 [If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 nor more than 60 days' notice by first class mail, [if applicable, insert--(1) on _____ in any year commencing with the year _____ and ending with the year ___ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [on or after ______, ______], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [on or before ________, ___%, and if redeemed] during the 12-month period beginning ________ of the years indicated,

and thereafter at a Redemption Price equal to ____% of the principal amount, together in the case of any such redemption [if applicable, insert -- (whether through operation of the sinking fund or otherwise)] with accrued and unpaid interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 nor more than 60 days' notice by first class mail, (1) on ________ in any year commencing with the year ________ and ending with the year _____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [on or after ______], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during a 12-month period beginning _________________ of the years indicated,

and thereafter at a Redemption Price equal to __% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued and unpaid interest to the Redemption Date, but interest installments whose Stated 17 Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [Notwithstanding the foregoing, the Company may not, prior to _________, redeem any Securities of this series as contemplated by [clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than __% per annum.] [The sinking fund for this series provides for the redemption on _______ in each year beginning with the year _____ and ending with the year _______ of [not less than] $____________ [("mandatory sinking fund") and not more than $____________] aggregate principal amount of Securities of this series.] [Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made--in the inverse order in which they become due.] [If applicable, insert -- Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at such Holder's option, at any time following the original issue date of the Securities of this series and on or before the close of business on the Business Day immediately preceding ___________, or in case this Security or a portion hereof is called for redemption or the Holder hereof has exercised his or her right to require the Company to repurchase this Security or such portion hereof, then in respect of this Security until but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on Business Day immediately preceding the Redemption Date or the Repurchase Date, as the case may be, to convert this Security (or any portion of the principal amount hereof that is an integral multiple of $1,000, provided that the unconverted portion of such principal amount is at least $1,000) into fully paid and nonassessable shares of Common Stock of the Company at an initial Conversion Rate of _____ shares of Common Stock for each $1,000 principal amount of Securities of this series (or at the current adjusted Conversion Rate if an adjustment has been made as provided in the Indenture, including pursuant to Section 14.03(2)) by surrender of this Security, duly endorsed or assigned to the Company or in blank and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except if this Security or portion thereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date and the conversion rights of this Security, or such portion thereof, would terminate during the period between such Regular Record Date and the close of business on such Interest Payment Date), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed, to the Company at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company, subject to any laws or regulations applicable thereto and subject to the right of the Company to terminate the appointment of any Conversion Agent as may be designated by it for such purpose, in the Borough of Manhattan, The City of New York, or at such other offices or agencies as the Company may designate; provided, however, that if 18 this Security or portion hereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date and the conversion rights of this Security, or such portion thereof, would terminate during the period between such Regular Record Date and the close of business on such Interest Payment Date, then the Holder of this Security on such Regular Record Date will be entitled to receive the interest accruing hereon from the Interest Payment Date next preceding the date of such conversion to such succeeding Interest Payment Date and the Holder of this Security who converts this Security or a portion hereof during such period shall not be required to pay such interest upon surrender of this Security for conversion. Subject to the provisions of the preceding sentence and, in the case of a conversion after the close of business on the Regular Record Date next preceding any Interest Payment Date and on or before the close of business on such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security of record as of such Regular Record Date) to receive the related installment of interest to the extent and under the circumstances provided in the Indenture, no cash payment or adjustment is to be made on conversion for interest accrued hereon from the Interest Payment Date next preceding the day of conversion, or for dividends on the Common Stock issued on conversion hereof. The Company shall thereafter deliver to the Holder the fixed number of shares of Common Stock (together with any cash adjustment, as provided in the Indenture) into which this Security is convertible and such delivery will be deemed to satisfy the Company's obligation to pay the principal amount of this Security. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of a share) the Company shall pay a cash adjustment as provided in the Indenture. The Conversion Rate is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party (other than a consolidation or merger that does not result in any reclassification, conversion, exchange or cancellation of the Common Stock) or the conveyance, transfer, sale or lease of all or substantially all of the property and assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities of this series, so that this Security, if then Outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of the number of shares of Common Stock of the Company into which this Security could have been converted immediately prior to such consolidation, merger, conveyance, transfer, sale or lease (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares and further assuming, if such consolidation, merger, conveyance, transfer, sale or lease occurs prior to the original issue date of the Securities of this series, that this Security was convertible at the time of such occurrence at the Conversion Rate specified above as adjusted from the issue date of such Security to such time as provided in the Indenture). No adjustment in the Conversion Rate will be made until such adjustment would require an increase or decrease of at least 1% of such price, provided that any adjustment that would otherwise be made, but for the application of the foregoing, will be carried forward and taken into account in the computation of any subsequent adjustment.] [If applicable, insert -- If a Change in Control occurs, the Holder of this Security, at the Holder's option, shall have the right, in accordance with the provisions of the Indenture, to 19 require the Company to repurchase this Security (or any portion of the principal amount hereof that is equal to $1,000 or an integral multiple of $1,000 in excess thereof) for cash at a Repurchase Price equal to 100% of the principal amount thereof plus interest accrued to the Repurchase Date. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the conditions provided in the Indenture, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price. For purposes of this paragraph, the fair market value of shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Share for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Repurchase Date. Whenever in this Security there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Security shall not be construed as excluding the Repurchase Price so payable in those provisions of this Security when such express mention is not made; provided, however, that, for the purposes of the [second] succeeding paragraph, such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash.] [In the event of redemption, repurchase or conversion of this Security in part only, a new Security or Securities of this series for the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If the Security is not an Original Issue Discount Security, insert -- If any Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal--insert formula for determining the amount. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.] [This Security is subject to defeasance as described in the Indenture.] The Indenture may be modified by the Company and the Trustee without consent of any Holder with respect to certain matters as described in the Indenture. In addition, the Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time 20 Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall bind such Holder and all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same Stated Maturity and aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of [$1,000] and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture imposes certain limitations on the ability of the Company to, among other things, merge or consolidate with any other Person or sell, assign, transfer or lease all or substantially all of its properties or assets [If other covenants are applicable pursuant to the provisions of Section 3.01, insert some reference here]. All such covenants and limitations are subject to a number of important qualifications and exceptions. The Company must report periodically to the Trustee on compliance with the covenants in the Indenture. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under this Security or the Indenture or for 21 any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder, by accepting a Security, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Security. [If applicable, insert -- Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures ("CUSIP"), the Company has caused CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. No representation is made as to the correctness or accuracy of such numbers as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon.] All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to: _______________________________________________________________________________ (Insert assignee's social security or tax I.D. number) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:_______________ Your Signature:_________________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranty:____________________________________________________________ [Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Transfer Agent, which requirements will include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act.] Social Security Number or Taxpayer Identification Number: _________________________________________________________ 22 SECTION 2.04. Form of Trustee's Certificate of Authentication. ------------------------------------------------ Dated: ________________ This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Wilmington Trust Company, As Trustee By ________________________________ Authorized Signatory SECTION 2.05. Form of Conversion Notice. -------------------------- The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or any portion of the principal amount hereof (which is $1,000 or an integral multiple of $1,000 in excess thereof, provided that the unconverted portion of such principal amount is at least $1,000) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that such shares, together with a check in payment for any fractional share and any Securities representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If shares of Common Stock or Securities are to be registered in the name of a Person other than the undersigned, (a) the undersigned will pay all applicable transfer taxes payable with respect thereto and (b) signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Dated:_______________ ----------------------------------- ----------------------------------- Signature(s) If shares or Securities are to be registered in the name of a Person other than the Holder, please print such Person's name and address: Name Address Social Security or other Identification Number, if any ----------------------------------- Signature Guaranteed 23 If only a portion of the Securities is to be converted, please indicate: 1. Principal amount to be converted: $_____________ 2. Principal amount and denomination of Securities representing unconverted principal amount to be issued: $______________ ($1,000 or any integral multiple of $1,000 in excess thereof, provided that the unconverted portion of such principal amount is at least $1,000) SECTION 2.06. Form of Election of Holder to Require Repurchase. ------------------------------------------------- Pursuant to Article XII of the Indenture, the undersigned hereby elects to have this Security repurchased by the Company. The undersigned hereby directs the Trustee or the Company to pay to the undersigned an amount in cash or, at the Company's election, Common Stock valued as set forth in the Indenture, equal to 100% of the principal amount to be repurchased (as set forth below), plus interest accrued to the Repurchase Date, as provided in the Indenture. Dated: _______________ ------------------------------------- ------------------------------------- Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. ------------------------------------- Signature Guaranteed Principal amount to be repurchased (at least $1,000 or an integral multiple $1,000 in excess thereof): _______________________________ Remaining principal amount following such repurchase (not less than $1,000): _________________________________ NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Note in every particular, without alteration or any change whatsoever. 24 SECTION 2.07. Securities in Global Form. -------------------------- If Securities of a series are issuable in global form, as contemplated by Section 3.01, then, notwithstanding the provisions of Section 3.02, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and that the aggregate amount of Outstanding Securities represented thereby may from time to time be changed to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 3.03 or Section 3.04. Subject to the provisions of Section 3.03 and, if applicable, Section 3.04, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 3.03 or 3.04 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel. The provisions of Section 3.09 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee the Security in global form together with written instructions (which need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby. Notwithstanding the provisions of Sections 2.01 and 3.07, unless otherwise specified as contemplated by Section 3.01, payment of principal or any premium and interest on any Security in permanent global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 3.08 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat a Person as the Holder of such principal amount of Outstanding Securities represented by a permanent global Security as shall be specified in a written statement of the Holder of such permanent global Security. SECTION 2.08. CUSIP Number ------------ The Company in issuing Securities of any series may use a "CUSIP" number, and if so, the Trustee may use the CUSIP number in notices of redemption or exchange as a convenience to Holders of such series; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed on the notice or on the Securities of such series, and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP number of any series of Securities. 25 SECTION 2.09. Form of Legend for the Securities in Global Form. ------------------------------------------------- Any Security in global form authenticated and delivered hereunder shall bear a legend in substantially the following form: "This Security is in global form within the meaning of the Indenture hereinafter referred to and is registered in the name of a Common Depositary or a U.S. Depositary. Unless and until it is exchanged in whole or in part for Securities in certificated form, this Security may not be transferred except as a whole by the Common Depositary or a U.S. Depositary or by a nominee of the Common Depositary or a nominee of the U.S. Depositary as the case may be." ARTICLE III THE SECURITIES SECTION 3.01. Amount Unlimited; Issuable in Series. ------------------------------------- The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued from time to time in one or more series. Prior to the issuance of Securities of any series, there shall be established in or pursuant to (i) a Board Resolution, and set forth in an Officer's Certificate, or (ii) one or more indentures supplemental hereto: (1) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07); (3) whether any Securities of the series are to be issuable in permanent global form with or without coupons and, if so, (i) whether beneficial owners of interests in any such permanent global Security may exchange such interests for Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 3.05, and (ii) the name of the Common Depositary (as defined in Section 3.04) or the U.S. Depositary, as the case may be, with respect to any global Security; (4) the date or dates on which the principal of the Securities of the series is payable; (5) the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest 26 Payment Dates on which such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date; (6) the place or places where the principal of (and premium, if any) and interest on Securities of the series shall be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, pursuant to any sinking fund or mandatory redemption or otherwise; (8) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation, and, where applicable, the obligation of the Company to select the Securities to be redeemed; (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; (10) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02; (11) additional Events of Default with respect to Securities of the series, if any, other than those set forth herein; (12) the terms of any right to convert or exchange Securities of the series, either at the option of the Holder thereof or the Company, into or for other securities or property, including, without limitation, the period or periods within which and the prices at which any Securities of the series shall be converted or exchanged, in whole or in part; (13) if either or both of Section 15.02 and Section 15.03 shall be inapplicable to the Securities of the series (provided that if no such inapplicability shall be specified, then both Section 15.02 and Section 15.03 shall be applicable to the Securities of the series); (14) if other than U.S. dollars, the currency or currencies or units based on or related to currencies in which the Securities of such series shall be denominated and in which payments or principal of, and any premium and interest on, such Securities shall or may by payable; (15) additional covenants with respect to Securities of the series, if any, other than those set forth herein; 27 (16) if other than the Trustee, the identity of the Registrar and any Paying Agent; and (17) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officer's Certificate or in any such Indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officer's Certificate setting forth, or providing the manner for determining, the terms of the Securities of such series. SECTION 3.02. Denominations. -------------- The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 3.01. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 3.03. Execution, Authentication, Delivery and Dating. ----------------------------------------------- The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security that has been duly authenticated and delivered by the Trustee. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and make such Securities available for delivery. If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 2.01 and 3.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and 28 (subject to Sections 315(a) through (d) of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion of Counsel stating, (a) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture; (b) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.01, that such terms have been established in conformity with the provisions of this Indenture; (c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting the enforcement of creditors' rights generally and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law); and (d) that no consent, approval, authorization, order, registration or qualification of or with any court or any governmental agency or body having jurisdiction over the Company is required for the execution and delivery of such Securities by the Company, except such as have been obtained (except that no opinion need be expressed as to state securities or Blue Sky laws). If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee, or in the written opinion of counsel to the Trustee (which counsel may be an employee of the Trustee) such authentication may not lawfully be made or would involve the Trustee in personal liability. Notwithstanding the provisions of Section 3.01 and of the immediately preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Board Resolution and the Officer's Certificate otherwise required pursuant to Section 3.01 or the Company Order and Opinion of Counsel otherwise required pursuant to the immediately preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. If the Company shall establish pursuant to Section 3.01 that the Securities of a series are to be issued in the form of one or more global Securities, then the Company shall execute and the Trustee shall, in accordance with this Section and the Company Order with respect to the authentication and delivery of such series, authenticate and deliver one or more global Securities that (i) shall be in an aggregate amount equal to the aggregate principal amount specified in such Company Order, (ii) shall be registered in the name of the Common Depositary 29 or U.S. Depositary, as the case may be, therefor or its nominee, and (iii) shall be made available for delivery by the Trustee to such depositary or pursuant to such depositary's instruction. Each depositary designated pursuant to Section 3.01 must, 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. Unless otherwise provided for in the form of Security, each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. SECTION 3.04. Temporary Securities. --------------------- Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form, representing all or a portion of the Outstanding Securities of such series. Except in the case of temporary Securities in global form (which shall be exchanged in accordance with the provisions of Section 3.05), if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations and of like tenor. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. If temporary Securities of any series are issued in global form, any such temporary global Security shall, unless otherwise provided therein, be delivered to the office of a depositary or common depositary (the "Common Depositary") for credit to the respective accounts of the beneficial owners of such Securities (or to such other accounts as they may direct). 30 SECTION 3.05. Registration, Registration of Transfer and Exchange. ---------------------------------------------------- The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of registration of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of any series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and Stated Maturity. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and Stated Maturity, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, except as otherwise specified or contemplated by Section 3.01, any permanent global Security shall be exchangeable only as provided in this paragraph. If the beneficial owners of interests in a permanent global Security are entitled to exchange such interests for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as specified in and subject to the conditions contemplated by Section 3.01, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities of that series in aggregate principal amount equal to the principal amount of such permanent global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such permanent global Securities shall be surrendered from time to time by the Common Depositary or the U.S. Depositary, as the case may be, for exchange in whole or in part for definitive Securities of the same series without charge, and in accordance with instructions given to the Trustee and the Common Depositary or the U.S. Depositary, as the case may be, (which instructions shall be in writing but need not comply with Section 1.02 or be accompanied by an Opinion of Counsel), as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered permanent global Security, a like aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such permanent global Security to be exchanged which shall be in the form of the Securities of such series; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.03 and ending at the close of business on the day of such mailing. Promptly following any such exchange in part, 31 such permanent global Security shall be returned by the Trustee to the Common Depositary or the U.S. Depositary, as the case may be, or such other Common Depositary or U.S. Depositary referred to above in accordance with the written instructions of the Company referred to above. If a Security in the form specified for such series is issued in exchange for any portion of a permanent global Security after the close of business at the office or agency where such exchange occurs on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of interest or Defaulted Interest, as the case may be, such interest or Defaulted Interest will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Security in the form specified for such series, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such permanent global Security is payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. Unless otherwise provided in the Securities to be transferred or exchanged, no service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. ------------------------------------------------- If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. 32 If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section 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 Securities. SECTION 3.07. Payment of Interest; Interest Rights Preserved. ----------------------------------------------- Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money 33 equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.08. Persons Deemed Owners. ---------------------- Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.07) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee or any agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interest of a Security in global form, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. Notwithstanding the foregoing, with respect to any Security in global form, nothing herein shall prevent the Company or the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any Common 34 Depositary (or its nominee), as a Holder, with respect to such Security in global form or impair, as between such Common Depositary and owners of beneficial interests in such Security in global form, the operation of customary practices governing the exercise of the right of such Common Depositary (or its nominee) as holder of such Security in global form. SECTION 3.09. Cancellation. ------------- All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities shall be held by the Trustee and may be destroyed (and, if so destroyed, certification of their destruction shall be delivered to the Company, unless, by a Company Order, the Company shall direct that cancelled Securities be returned to it). SECTION 3.10. Computation of Interest. ------------------------ Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a year of twelve 30-day months. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.01. Satisfaction and Discharge of Indenture. ---------------------------------------- This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange, the right of conversion or the Company's right of optional redemption of Securities herein expressly provided for or in the form of Security for such series), when the Trustee, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.09) have been delivered to the Trustee for cancellation; or 35 (B) all such Securities not theretofore delivered to the Trustee for cancellation: (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) 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 Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.07, the obligations of the Company to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.09 shall survive. SECTION 4.02. Application of Trust Money. --------------------------- Subject to the provisions of the last paragraph of Section 10.09, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with or received by the Trustee. 36 ARTICLE V REMEDIES SECTION 5.01. Events of Default. ------------------ "Event of Default," wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or to 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 administrative or governmental body): (1) the Company defaults in the payment of interest on any Security of that series when such interest becomes due and payable and the default continues for a period of 30 days; (2) the Company defaults in the payment of the principal of (or premium, if any, on) any Security of that series when the same becomes due and payable at Maturity, upon redemption (including redemptions under Article XI), or otherwise; (3) the Company fails to observe or perform any of its other covenants, warranties or agreements in the Securities of that series or this Indenture (other than a covenant, agreement or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and the failure to observe or perform continues for the period and after the notice specified in the last paragraph of this Section; (4) an event of default, as defined in any mortgage, indenture, or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Company (including Securities of another series) or a Subsidiary of the Company (whether such Indebtedness now exists or shall hereafter be created or incurred) shall occur and shall consist of default in the payment of such Indebtedness at the maturity thereof (after giving effect to any applicable grace period) or shall result in Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such default in payment is not cured or such acceleration shall not be rescinded or annulled within 30 days after written notice to the Company from the Trustee or to the Company and to the Trustee from the Holders of at least 25% in aggregate principal amount of the Securities of that series at the time outstanding; provided that it shall not be an Event of Default if the principal amount of Indebtedness which is not paid at maturity or the maturity of which is accelerated is less than $10,000,000; provided, further, that if, prior to a declaration of acceleration of the maturity of the Securities of that series or the entry of judgment in favor of the Trustee in a suit pursuant to Section 5.03, such default shall be remedied or cured by the Company or waived by the holders of such Indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or any of the Holders of the Securities of that series; and provided, further, that, subject to 37 Sections 6.01 and 6.02, the Trustee shall not be charged with knowledge of any such default unless written notice of such default shall have been given to the Trustee by the Company, by a holder or an agent of a holder of any such Indebtedness, by the trustee then acting under any indenture or other instrument under which such default shall have occurred, or by the Holders of at least five percent in aggregate principal amount of the Securities of that series at the time outstanding; (5) one or more judgments or decrees shall be entered against the Company involving individually or in the aggregate, a liability of $5,000,000 or more and a sufficient number of such judgments or decrees shall not have been vacated, discharged, satisfied or stayed pending appeal within 30 days from the entry thereof so as to bring the aggregate liability in respect thereof below the $5,000,000 threshold; (6) the Company (or a Subsidiary of the Company which is deemed to be a "significant subsidiary" as that term is defined in Regulation S-X promulgated by the Commission) pursuant to or within the meaning of any Bankruptcy Law (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to or acquiesces in the institution of bankruptcy or insolvency proceedings against it, (D) applies for, consents to or acquiesces in the appointment of or taking possession by a Custodian of the Company or such Subsidiary or for any material part of its property, (E) makes a general assignment for the benefit of its creditors or (F) takes any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing; (7) (i) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company (or a Subsidiary of the Company which is deemed to be a "significant subsidiary" as that term is defined in Regulation S-X promulgated by the Commission) in an involuntary case or proceeding under any Bankruptcy Law which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or such Subsidiary, (B) appoint a Custodian of the Company or such Subsidiary or for any material part of its property or (C) order the winding-up or liquidation of its affairs, and such judgment, decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (ii) any bankruptcy or insolvency petition or application is filed, or any bankruptcy or insolvency proceeding is commenced against the Company or such Subsidiary and such petition, application or proceeding is not dismissed within 90 days; or (iii) a warrant of attachment is issued against any material portion of the property of the Company or such Subsidiary which is not released within 90 days of service; (8) if Article XII shall be applicable to the Securities of such series, the Company fails to give a Company Notice in accordance with Section 12.03 or defaults in the payment of the Repurchase Price following the election by the Holder of a Security of that series to require the Company to repurchase such Security pursuant to and in accordance with Article XII; or 38 (9) any other Event of Default provided with respect to Securities of that series. A Default under clause (3) above is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series notify the Company of the Default and the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." When a Default under clause (3) above is cured within such 60-day period, it ceases to be a Default. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. --------------------------------------------------- If an Event of Default with respect to Securities of any series (other than an Event of Default specified in clause (6) or (7) of Section 5.01) occurs and is continuing, the Trustee by notice in writing to the Company, or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series by notice in writing to the Company and the Trustee, may declare the unpaid principal of and accrued interest to the date of acceleration (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) on all the Outstanding Securities of that series to be due and payable immediately and, upon any such declaration, the Outstanding Securities of that series (or specified principal amount) shall become and be immediately due and payable. If an Event of Default specified in clause (6) or (7) of Section 5.01 occurs, all unpaid principal of and accrued interest on the Outstanding Securities of that series (or specified principal amount) 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 any Security of that series. Upon payment of all such principal and interest, all of the Company's obligations under the Securities of that series and (upon payment of the Securities of all series) this Indenture shall terminate, except obligations under Section 6.07. The Holders of a majority in principal amount of the Outstanding Securities of that series by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal and interest of the Securities of that series that has become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal that has become due otherwise than by such declaration of acceleration have been paid, (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iv) all payments due to the Trustee and any predecessor Trustee under Section 6.07 have been made. 39 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. ---------------------------------------------------------------- The Company covenants that if: (1) default is made in the payment of any interest on any Security of any series when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security of any series at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such 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 secure any other proper remedy. SECTION 5.04. Trustee May File Proofs of Claim. --------------------------------- In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to 40 file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceedings, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities. ------------------------------------------------------------ All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected. ------------------------------- Any money collected by the Trustee pursuant to this Article in respect of the Securities of any series shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities in respect of which moneys have been collected and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 6.07 applicable to such series; Second: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities of such series in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities of such series for principal (and premium, if any) and interest, respectively; and 41 Third: To the Company. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 5.06. At least ten (10) days before such record date, the Trustee shall mail to each Holder and the Company a notice that states the record date, the payment date and the amount to be paid. SECTION 5.07. Limitation on Suits. -------------------- No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of Holders of Securities of any series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders of Securities of the affected series. SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and ---------------------------------------------------------------- Interest. --------- Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to convert such Security in accordance with Article XIV, and to institute suit for the enforcement of any such payment or right to convert, and such rights shall not be impaired without the consent of such Holder. 42 SECTION 5.09. Restoration of Rights and Remedies. ----------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding has been instituted. SECTION 5.10. Rights and Remedies Cumulative. ------------------------------- Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders 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 5.11. Delay or Omission Not Waiver. ----------------------------- No delay or omission of the Trustee or of any Holder of any Securities 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 Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12. Control by Holders. ------------------- The Holders of a majority in principal amount of the Outstanding Securities of any series shall 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, with respect to the Securities of such series, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture; (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and (3) subject to Section 6.01, the Trustee need not take any action which might involve the Trustee in personal liability or be unduly prejudicial to the Holders not joining therein. 43 SECTION 5.13. Waiver of Past Defaults. ------------------------ The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may by written notice to the Trustee on behalf of the Holders of all the Securities of such series waive any Default or Event of Default with respect to such series and its consequences, except a Default or Event of Default (1) in respect of the payment of the principal of (or premium, if any) or interest on any Security of such series, or (2) in respect of a covenant or other provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such Default or Event of Default shall cease to exist and shall be deemed to have been cured, for every purpose of this Indenture and the Securities of such series; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. ---------------------- All parties to this Indenture agree, and each Holder of any Security by his 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 Trustee for any action taken, suffered or omitted by it as 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, 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; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). ARTICLE VI THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities of the Trustee. --------------------------------------------------- (a) Except during the continuance of an Event of Default, the Trustee's duties and responsibilities under this Indenture shall be governed by Section 315(a) of the Trust Indenture Act. (b) In case an Event of Default has occurred and is continuing, and is known to the Trustee, the Trustee shall exercise the rights and powers vested in it by this Indenture, and 44 shall use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) None of the provisions of Section 315(d) of the Trust Indenture Act shall be excluded from this Indenture. SECTION 6.02. Notice of Defaults. ------------------- Within 90 days after the occurrence of any Default or Event of Default with respect to the Securities of any series, the Trustee shall give to all Holders of Securities of such series, as their names and addresses appear in the Security Register, notice of such Default or Event of Default known to the Trustee, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund installment with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series. SECTION 6.03. Certain Rights of Trustee. -------------------------- Subject to the provisions of the Trust Indenture Act: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or 45 indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) prior to the occurrence of an Event of Default with respect to the Securities of any series and after the curing or waiving of all such Events of Default which may have occurred, the 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, direction, consent, order, approval or other paper or document, or the books and records of the Company, unless requested in writing to do so by the Holders of a majority in principal amount of the Outstanding Securities of any series; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is not, in the opinion of the Trustee, reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding; the reasonable expense of every such investigation shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) the Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. ------------------------------------------------------- The recitals herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. May Hold Securities. -------------------- The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 6.06. Money Held in Trust. -------------------- Money held by the Trustee in trust hereunder (including amounts held by the Trustee as Paying Agent) need not be segregated from other funds except to the extent required 46 by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed upon in writing with the Company. SECTION 6.07. Compensation and Reimbursement. ------------------------------- The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability, damage, claim or expense, including taxes (other than taxes based upon or determined or measured by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(6) or Section 5.01(7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Bankruptcy Law. The provisions of this Section 6.07 shall survive this Indenture. SECTION 6.08. Disqualification; Conflicting Interests. ---------------------------------------- The Trustee shall be disqualified only where such disqualification is required by Section 310(b) of the Trust Indenture Act. Nothing shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act. SECTION 6.09. Corporate Trustee Required; Eligibility. ---------------------------------------- There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined 47 capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company may serve as Trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. Resignation and Removal; Appointment of Successor. -------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months; or (2) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder of a Security who has been a bona fide Holder of a Security for at least six months; or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee 48 or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company with respect to such Securities. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. --------------------------------------- (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of such (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of such series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those 49 series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under the Trust Indenture Act. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. ------------------------------------------------------------ Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor (by merger, conversion, consolidation or otherwise as permitted hereunder) to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13. Preferential Collection of Claims Against Company. -------------------------------------------------- The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. 50 SECTION 6.14. Appointment of Authenticating Agent. ------------------------------------ At any time when any of the Securities remain Outstanding the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of, and subject to the direction of, the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. 51 The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: Form of Authenticating Agent's Certificate of Authentication ----------------------------- Dated:____________ This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Wilmington Trust Company, As Trustee By ------------------------------------- As Authenticating Agent By ------------------------------------- Authorized Signatory ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders. ---------------------------------------------------------- The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not later than January 1 and July 1 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of the preceding December 15 or June 15, as the case may be; and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any 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; provided, however, that so long as the Trustee is the Security Registrar, no such list shall be required to be furnished. 52 SECTION 7.02. Preservation of Information; Communications to Holders. ------------------------------------------------------- (a) The 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 Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) If three or more Holders (herein referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Indenture or under the Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.02(a); or (ii) inform such applicants as to the approximate number of Holders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appears in the information preserved at the time by the Trustee in accordance with Section 7.02(a) a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of 53 either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 7.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 7.02(b). SECTION 7.03. Reports by Trustee. ------------------- (a) Within 60 days after May 15 of each year commencing with the year 2002, the Trustee shall transmit by mail to all Holders of Securities as provided in Section 313(c) of the Trust Indenture Act, a brief report dated as of May 15, if required by and in compliance with Section 313(a) of the Trust Indenture Act. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. SECTION 7.04. Reports by Company. ------------------- The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) furnish to the Trustee, on or before May 1 of each year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. Such certificate need not comply with Section 1.02. 54 ARTICLE VIII CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER SECTION 8.01. When Company May Merge, Etc. ---------------------------- The Company shall not consolidate with, or merge with or into any other Person (whether or not the Company shall be the surviving corporation), or sell, assign, transfer or lease all or substantially all of its properties and assets as an entirety or substantially as an entirety to any Person or group of affiliated Persons, in one transaction or a series of related transactions, unless: (1) either the Company shall be the continuing Person or the Person (if other than the Company) formed by such consolidation or with which or into which the Company is merged or the Person (or group of affiliated Persons) to which all or substantially all the properties and assets of the Company as an entirety or substantially as an entirety are sold, assigned, transferred or leased shall be a corporation (or constitute corporations) organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; and (2) immediately before and after giving effect to such transaction or series of related transactions, no Event of Default, and no Default, shall have occurred and be continuing. SECTION 8.02. Opinion of Counsel. ------------------- The Company shall deliver to the Trustee prior to the proposed transaction(s) covered by Section 8.01 an Officer's Certificate and an Opinion of Counsel stating that the transaction(s) and such supplemental indenture comply with this Indenture and that all conditions precedent to the consummation of the transaction(s) under this Indenture have been met. SECTION 8.03. Successor Corporation Substituted. ---------------------------------- Upon any consolidation by the Company with or merger by the Company into any other corporation or any lease, sale, assignment, or transfer of all or substantially all of the property and assets of the Company in accordance with Section 8.01, the successor corporation formed by such consolidation or into which the Company is merged or the successor corporation or affiliated group of corporations to which such lease, sale, assignment, or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation or corporations had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor corporation or corporations shall be relieved of all obligations and covenants under this Indenture and the Securities and in the event of such conveyance or transfer, except in the case of a lease, any such predecessor corporation may be dissolved and liquidated. 55 ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indentures Without Consent of Holders. --------------------------------------------------- Without notice to or the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; (3) to add any additional Events of Default with respect to all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); (4) to add or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (5) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; (6) to secure the Securities; (7) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); (9) to cure any ambiguity, defect or inconsistency or to correct or supplement any provision herein which may be inconsistent with any other provision herein; or 56 (10) to make any change that does not materially adversely affect the interests of the Holders of Securities of any series. Upon request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in (and subject to the last sentence of) Section 9.03, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture. SECTION 9.02. Supplemental Indentures with Consent of Holders. ------------------------------------------------ With the written consent of the Holders of a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee shall, subject to Section 9.03, enter into an indenture or indentures supplemental 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 of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption or repurchase thereof or extend the time for payment thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, including the payment of any Redemption Price or Repurchase Price in respect of such Security, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repurchase at the option of the Holder, on or after the Redemption Date or Repurchase Date, as the case may be); (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or Defaults or Events of Default hereunder and their consequences provided for in this Indenture; (3) change the redemption provisions (including Article XI) hereof in a manner adverse to such Holder; (4) modify any of the provisions of this Section or Section 5.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be 57 deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section, or the deletion of this proviso, in accordance with the requirements of Sections 6.11(b) and 9.01(8); (5) adversely affect the right of a Holder of a Security to require the Company to repurchase such Security; or (6) adversely affect the right of a Holder of a Security to require the Company to convert such Security. A supplemental indenture which changes or eliminates any covenant or other provisions of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. ------------------------------------- The Trustee shall sign any supplemental indenture authorized pursuant to this Article, subject to the last sentence of this Section 9.03. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. ---------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act. ------------------------------------ Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.06. Reference in Securities to Supplemental Indentures. --------------------------------------------------- Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a 58 notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE X COVENANTS SECTION 10.01. Payments of Securities. ----------------------- With respect to each series of Securities, the Company will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series. SECTION 10.02. Maintenance of Office or Agency. -------------------------------- The Company will maintain an office or agency in each Place of Payment where Securities may be surrendered for registration of transfer or exchange or for presentation for payment, where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee as set forth in Section 1.05 hereof. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates as a Place of Payment for Securities the office or agency of the Company in the Borough of Manhattan, the City of New York, and initially appoints _________________, at its Corporate Trust Office in such city as Paying Agent, Security Registrar and Conversion Agent and as its agent to receive all such presentations, surrenders, notices and demands. SECTION 10.03. Corporate Existence. -------------------- Subject to Article VIII hereof, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each of its Subsidiaries and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that (a) the Company shall not be required to preserve any such right, license or franchise or the corporate existence of any of its Subsidiaries if the Board of Directors, or the board of directors of the Subsidiary concerned, as the case may be, shall 59 determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any of its Subsidiaries and that the loss thereof is not materially disadvantageous to the Holders, and (b) nothing herein contained shall prevent any Subsidiary of the Company from liquidating or dissolving, or merging into, or consolidating with the Company (provided that the Company shall be the continuing or surviving corporation) or with any one or more other Subsidiaries if the Board of Directors or the board of directors of the Subsidiary concerned, as the case may be, shall so determine. SECTION 10.04. Payment of Taxes and Other Claims. ---------------------------------- The Company will pay or discharge, or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate provision has been made. SECTION 10.05. Maintenance of Properties. -------------------------- The Company will cause all material properties used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order (normal wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors or of the board of directors of the Subsidiary concerned, as the case may be, desirable in the conduct of the business of the Company or any Subsidiary of the Company and not materially disadvantageous to the Holders. SECTION 10.06. Compliance Certificates. ------------------------ (a) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year of the Company (which fiscal year currently ends on December 31), an Officer's Certificate stating whether or not the signer knows of any Default or Event of Default by the Company that occurred prior to the end of the fiscal year and is then continuing. If the signer does know of such a Default or Event of Default, the certificate shall describe each such Default or Event of Default and its status and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. The Company shall also promptly notify the Trustee in writing should the Company's fiscal year be changed so that the end thereof is on any date other than the date on which the Company's fiscal year currently ends. 60 The certificate need not comply with Section 1.02 hereof, but shall comply with Section 314(a)(4) of the Trust Indenture Act. (b) The Company shall deliver to the Trustee, within 10 days after the occurrence thereof, notice of any acceleration which with the giving of notice and the lapse of time would be an Event of Default within the meaning of Section 5.01(4) hereof. (c) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters and (ii) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof and the specific section or sections of this Indenture in connection with which such Default has occurred; provided that, without any restriction as to the scope of the audit examination, such independent certified public accountants shall not be liable by reason of the failure to obtain knowledge of such Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards. (d) The Company shall deliver to the Trustee forthwith upon becoming aware of a Default or Event of Default (but in no event later than 10 days after the occurrence of each Default or Event of Default that is continuing), an Officer's Certificate setting forth the details of such Default or Event of Default and the action that the Company proposes to take with respect thereto and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. SECTION 10.07. Commission Reports. ------------------- (a) The Company shall file with the Trustee, within 30 days after it files them with the Commission, copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirement of such Section 13 or 15(d) of the Exchange Act, the Company shall file with the Trustee, within 30 days after it would have been required to file such information with the Commission, financial statements, including any notes thereto and, with respect to annual reports, an auditors' report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," both comparable to that which the Company would have been required to include in such annual reports, information, documents or other reports if the Company had been subject to the requirements of such Sections 13 or 15(d) of the Exchange Act. The Company also shall comply with the other provisions of Section 314(a) of the Trust Indenture Act. (b) So long as the Securities remain outstanding, the Company shall cause its annual report to stockholders and any other financial reports furnished by it to stockholders generally, to be mailed to the Holders at their addresses appearing in the register of Securities maintained by the Security Registrar in each case at the time of such mailing or furnishing to 61 stockholders. If the Company is not required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause its financial statements, including any notes thereto and, with respect to annual reports, an auditors' report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," to be so filed with the Trustee and mailed to the Holders within 90 days after the end of each of the Company's fiscal years and within 45 days after the end of each of the first three quarters of each fiscal year. (c) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Company may be required to deliver to the Holders under this Section 10.07. SECTION 10.08. Waiver of Stay, Extension or Usury Laws. ---------------------------------------- The Company 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, and will actively resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law, which would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company 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 Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 10.09. Money for Securities Payments to Be Held in Trust. -------------------------------------------------- If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure to so act. The Company will cause each Paying Agent for any series of Securities (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the 62 Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest on the Securities of that series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for one year after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee of such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York, New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.01. Applicability of Article. ------------------------- Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. SECTION 11.02. Election to Redeem; Notice to Trustee. -------------------------------------- The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the 63 Securities of any series, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officer's Certificate evidencing compliance with such restriction. SECTION 11.03. Selection by Trustee of Securities to Be Redeemed. -------------------------------------------------- If less than all the Securities of any series are to be redeemed, the particular Securities to be redeemed shall be selected not more than 90 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, substantially pro rata, by lot or by any other method as the Trustee considers fair and appropriate and that complies with the requirements of the principal national securities exchange, if any, on which such Securities are listed, and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series; provided that in case the Securities of such series have different terms and maturities, the Securities to be redeemed shall be selected by the Company and the Company shall give notice thereof to the Trustee. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of the Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.04. Notice of Redemption. --------------------- Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price; (3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed; 64 (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date; (5) the place or places where such Securities are to be surrendered for payment of the Redemption Price; (6) that the redemption is for a sinking fund, if such is the case; and (7) the CUSIP number, if any, of the Securities to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.05. Deposit of Redemption Price. ---------------------------- Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.09) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.06. Securities Payable on Redemption Date. -------------------------------------- Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular or Special Record Dates according to their terms and the provisions of Section 3.07. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 11.07. Securities Redeemed in Part. ---------------------------- Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the 65 same series and Stated Maturity, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE XII REPURCHASE OF SECURITIES AT OPTION OF HOLDER UPON A CHANGE IN CONTROL SECTION 12.01. Right to Require Repurchase. ---------------------------- If so provided in a Board Resolution with respect to the Securities of any series, in the event that a Change in Control shall occur, then each Holder of a Security of such series shall have the right, at the Holder's option, but subject to the provisions of Section 12.02, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Securities of such series not theretofore called for redemption, or any portion of the Principal thereof that is equal to $1,000 or any integral multiple of $1,000 in excess thereof (provided that no single Securities may be repurchased in part unless the portion of the Principal of such Securities to be Outstanding after such repurchase is at least $1,000), on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice at a purchase price equal to 100% of the principal amount of the Securities to be repurchased plus interest accrued to the Repurchase Date (the "Repurchase Price"); provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Repurchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.07. Such right to require the repurchase of the Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities of such series in accordance with the provisions of Article IV unless a Change in Control shall have occurred prior to such discharge. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the fulfillment by the Company of the conditions set forth in Section 12.02, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price. Whenever in this Indenture (including Sections 2.02, 2.03, 5.01(2) and 5.08) there is a reference, in any context, to the Principal of any Securities as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Securities to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made; provided, however, that for the purposes of Article XIV such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. The provisions of this Article XII shall not be applicable to the Securities of a series unless otherwise specified in a Board Resolution with respect to the Securities of such series. 66 SECTION 12.02. Conditions to the Company's Election to Pay the Repurchase Price ---------------------------------------------------------------- in Common Stock. ---------------- The Company may elect to pay the Repurchase Price by delivery of shares of Common Stock pursuant to Section 12.01 if and only if the following conditions shall have been satisfied: (1) The shares of Common Stock deliverable in payment of the Repurchase Price shall have a fair market value as of the Repurchase Date not less than the Repurchase Price. For purposes of Section 12.01 and this Section 12.02, the fair market value of the shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Share of the Common Stock for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Repurchase Date; (2) The shares of Common Stock to be issued upon repurchase of Securities hereunder (i) shall not require registration under any federal securities laws before such shares may be freely transferable without being subject to any transfer restrictions under the Securities Act upon repurchase or, if such registration is required, such registration shall be completed and shall become effective prior to the Repurchase Date, and (ii) shall not require registration with or approval of any governmental authority under any state law or any other federal law before such shares may be validly issued or delivered upon repurchase or, if such registration or approval is required, such registration shall be completed or such approval shall be obtained prior to the Repurchase Date; (3) The shares of Common Stock to be issued upon repurchase of Securities hereunder are, or shall have been, listed on a national securities exchange or approved for quotation on the Nasdaq National Market (including each national securities exchange on which the Common Stock is generally so listed and the Nasdaq National Market if the Common Stock is so quoted), prior to the Repurchase Date; and (4) All shares of Common Stock which may be issued upon repurchase of Securities will be issued out of the Company's authorized but unissued Common Stock and will, upon issue, be duly and validly issued and fully paid and nonassessable and free of any preemptive or similar rights. If all of the conditions set forth in this Section 12.02 are not satisfied in accordance with the terms thereof, the Repurchase Price shall be paid by the Company only in cash. SECTION 12.03. Notices; Method of Exercising Repurchase Right, Etc. ---------------------------------------------------- (a) Unless the Company shall have theretofore called for redemption all of the Outstanding Securities of such series to which this Article is applicable, on or before the 30th day after the occurrence of a Change in Control, the Company or, at the request and expense of the Company on or before the 30th day after such occurrence, the Trustee, shall give to all Holders of Securities of such series, in the manner provided in Section 1.06, notice (the 67 "Company Notice") of the occurrence of the Change in Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such Company Notice to the Trustee. Each Company Notice shall state: (i) the Repurchase Date; (ii) the date by which the repurchase right must be exercised pursuant to Section 12.03(b); (iii) the Repurchase Price, and whether the Repurchase Price shall be paid by the Company in cash or by delivery of shares of Common Stock; (iv) a description of the procedure which a Holder must follow to exercise a repurchase right, and the place or places where such Securities are to be surrendered for payment of the Repurchase Price; (v) that on the Repurchase Date the Repurchase Price will become due and payable upon each such Security designated by the Holder to be repurchased, and that interest thereon shall cease to accrue on and after said date; (vi) the Conversion Rate then in effect, the date on which the right to convert the Principal of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion; and (vii) the place or places that the Securities certificate, together with the Election of Holder to Require Repurchase as specified in Section 2.06 shall be delivered. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. If any of the foregoing provisions or other provisions of this Article XII are inconsistent with applicable law, such law shall govern. (b) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the 30th day after the date of the Company Notice (i) written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the Principal of the Securities to be repurchased (and, if any Securities are to be repurchased in part, the serial number thereof, the portion of the Principal thereof to be repurchased and the name of the Person in which the portion thereof to remain Outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby, and, in the event that the Repurchase Price shall be paid in shares of Common Stock, the name or names (with addresses) in which the certificate or certificates for shares of Common Stock shall be issued, and (ii) the Securities with respect to which the repurchase right is being exercised. Such written notice shall be irrevocable, except that the right of the Holder to convert the Securities 68 with respect to which the repurchase right is being exercised shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee the Repurchase Price in cash or shares of Common Stock, as provided above, for payment to the Holder on the Repurchase Date or, if shares of Common Stock are to be paid, as promptly as practicable after the Repurchase Date, payable with respect to the Securities as to which the repurchase right has been exercised; provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date. The Company covenants that, if the Repurchase Price is to be paid in cash, at least one Business Day prior to the Repurchase Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.09) an amount of money sufficient to pay the Principal of, and (except if the Repurchase Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repurchased on such Repurchase Date. (d) If any Securities (or portions thereof) surrendered for repurchase shall not be so paid on the Repurchase Date, the Principal amount of such Securities (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate specified in a Board Resolution or supplemental indenture with respect to Securities of such series, and such Securities shall remain convertible into Common Stock until the Principal amount of such Securities (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) Any Securities which are to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Securities without service charge, a new Security or Securities containing identical terms and conditions, each in an authorized denomination in aggregate Principal amount equal to and in exchange for the unrepurchased portion of the Principal amount of the Securities so surrendered. (f) Any issuances of shares of Common Stock in respect of the Repurchase Price shall be deemed to have been effected immediately prior to the close of business on the Repurchase Date and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such repurchase shall be deemed to have become on the Repurchase Date the holder or holders of record of the shares represented thereby; provided, however, that any surrender for repurchase on a date when the stock transfer books of the Company shall be closed shall constitute the Person or Persons in whose name or names the certificate or certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open. No payment or adjustment shall be made for dividends or 69 distributions on any Common Stock issued upon repurchase of any Securities declared prior to the Repurchase Date. (g) No fractions of shares shall be issued upon repurchase of Securities. If more than one Security shall be repurchased from the same Holder and the Repurchase Price shall be payable in shares of Common Stock, the number of full shares which shall be issuable upon such repurchase shall be computed on the basis of the aggregate Principal amount of the Securities so repurchased. Instead of any fractional share of Common Stock which would otherwise be issuable on the repurchase of any Security or Securities, the Company will deliver to the applicable Holder its check for the current market value of such fractional share. The current market value of a fraction of a share is determined by multiplying the current market price of a full share by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of a share of Common Stock is the Closing Price Per Share of the Common Stock on the Trading Day immediately preceding the Repurchase Date. (h) Any issuance and delivery of certificates for shares of Common Stock on repurchase of Securities shall be made without charge to the Holder of Securities being repurchased for such certificate or for any tax or duty in respect of the issuance or delivery of such certificates or the shares of Common Stock represented thereby; provided, however, that the Company shall not be required to pay any tax or duty which may be payable in respect of (i) income of the Holder or (ii) any transfer involved in the issuance or delivery of certificates for shares of Common Stock in a name other than that of the Holder of the Securities being repurchased, and no such issuance or delivery shall be made unless and until the Person requesting such issuance or delivery has paid to the Company the amount of any such tax or duty or has established, to the satisfaction of the Company, that such tax or duty has been paid. (i) All Securities delivered for repurchase shall be delivered to the Trustee to be canceled at the direction of the Trustee, which shall dispose of the same as provided in Section 3.09. SECTION 12.04. Certain Definitions. -------------------- For purposes of this Article XII, (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the original execution of this Indenture, promulgated by the Commission pursuant to the Exchange Act; (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of the Securities, of: (i) the acquisition by any Person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act as in effect on the date of the original execution of this Indenture) of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of Capital Stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of Capital Stock of the Company entitled to vote generally in the election of directors (or 70 persons holding a similar function), other than any such acquisition by the Company, any Subsidiary of the Company or any employee benefit plan of the Company; or (ii) any consolidation of the Company with, or a merger of the Company into, any other Person, any merger of another Person into the Company, or any conveyance, sale, transfer, lease or other disposition of all or substantially all of the assets of the Company to another Person (other than (A) any transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Capital Stock of the Company and (y) pursuant to which the holders of the Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of Capital Stock entitled to vote generally in the election of directors (or persons holding a similar function) of the continuing or surviving entity immediately after such transaction and (B) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of common stock of the surviving entity; provided, however, that a Change in Control shall not be deemed to have occurred if (I) the Closing Sales Price Per Share of the Common Stock for any five Trading Days within the period of 10 consecutive Trading Days ending immediately after the later of the Change in Control or the public announcement of the Change in Control (in the case of a Change in Control under clause (i) above) or the period of 10 consecutive Trading Days ending immediately before the Change in Control (in the case of a Change in Control under clause (ii) above) shall equal or exceed 105% of the Conversion Price of the Securities of such series in effect on such Trading Day or (II) all of the consideration (excluding cash payments for fractional shares and cash payments made pursuant to dissenters' appraisal rights) in a merger or consolidation otherwise constituting a Change in Control under clause (i) and/or clause (ii) above consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market (or will be so traded or quoted immediately following such merger or consolidation), and as a result of such merger or consolidation, the Securities of such series become convertible solely into such common stock; and (3) the term "Closing Price Per Share" means, with respect to the Common Stock, for any day, (i) the last reported sale price regular way (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and average ask prices) on such date as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional stock exchange, as reported by the Nasdaq National Market, or (ii) if the Common Stock is not listed or admitted to trading on any United States securities exchange or quoted on the Nasdaq National Market, the average of the closing bid prices in the over-the-counter market as furnished by any Nasdaq National Market member firm selected from time to time by the Company for that purpose. 71 SECTION 12.05. Consolidation, Merger, Etc. --------------------------- In the case of any consolidation, merger, conveyance, sale, transfer or lease of all or substantially all of the assets of the Company to which Section 14.04 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive shares of stock and other securities, property or assets (including cash), which includes shares of Common Stock of the Company or common stock of another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established over-the-counter trading market in the United States, and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such shares of stock and other securities, property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or which acquires the all or substantially all of the assets of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force and effect at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of Holders to cause the Company to repurchase the Securities following a Change in Control, including, without limitation, the applicable provisions of this Article XII and the definitions of Common Stock and Change in Control, as appropriate, and such other related definitions set forth herein and in the Indenture as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply in the event of a subsequent Change in Control to the common stock and the issuer thereof if different from the Company and the Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). ARTICLE XIII SINKING FUNDS SECTION 13.01. Applicability of Article. ------------------------- The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise specified as contemplated by Section 3.01 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "optional sinking fund payment." If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 13.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. SECTION 13.02. Satisfaction of Sinking Fund Payments with Securities. ------------------------------------------------------ The Company (1) may deliver Securities of a series (other than any Securities previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or 72 through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 13.03. Redemption of Securities for Sinking Fund. ------------------------------------------ Not less than 45 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officer's Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 13.02 and will also deliver to the Trustee any Securities to be so delivered (which have not been previously delivered). Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.06 and 11.07. ARTICLE XIV CONVERSION SECTION 14.01. Conversion Privilege. --------------------- If so provided in a Board Resolution with respect to the Securities of any series, the Holder of a Security of such series shall have the right, at such Holder's option, to convert, in accordance with the terms of such series of securities and this Article XIV, all or any part (in a denomination of, unless otherwise specified in a Board Resolution or supplemental indenture with respect to Securities of such series, $1,000 in principal amount or any integral multiple thereof) of such Security into shares of Common Stock; provided, that in case a Security or portion thereof is called for redemption or delivered for repurchase pursuant to Article XI or Article XII, such conversion right in respect of the Security or portion so called shall expire at the close of business on the Business Day immediately preceding the date fixed for such redemption or repurchase (unless the Company shall default in the payment of the redemption price, or repurchase amount in which case such right shall not terminate at such time and date). The provisions of this Article XIV shall not be applicable to the Securities of a series unless otherwise specified in a Board Resolution with respect to the Securities of such series. 73 SECTION 14.02. Conversion Procedure; Conversion Rate; Fractional Shares. --------------------------------------------------------- (a) Each Security to which this Article is applicable shall be convertible at the office of the Conversion Agent, and at such other place or places, if any, specified in a Board Resolution or supplemental indenture with respect to the Securities of such series, into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock. The rate at which shares of Common Stock shall be delivered upon conversion (the "Conversion Rate") shall be initially the rate therefor specified in a Board Resolution or supplemental indenture with respect to the Securities of such series. No payment or adjustment shall be made in respect of dividends on the Common Stock or accrued interest on a converted Security, except as described in Section 14.09. The Company may, but shall not be required to, in connection with any conversion of Securities, issue a fraction of a share of Common Stock and, if the Company shall determine not to issue any such fraction, the Company shall make a cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Closing Price of the Common Stock on the last Trading Day prior to the date of conversion. (b) Before any Holder of a Security shall be entitled to convert such Security into Common Stock, such Holder shall surrender such Security duly endorsed or assigned to the Company or in blank, at the office of the Conversion Agent or at such other place or places, if any, specified in a Board Resolution with respect to the Securities of such series (each, a "Place of Conversion"), accompanied by written notice of conversion substantially in the form set forth in Section 2.05 (or such other notice, as is acceptable to the Company) at such office or place that the Holder elects to convert such Security or, if less than entire principal amount thereof is to be converted, the portion thereof to be converted, and shall state in writing therein the principal amount of Securities to be converted and the name or names (with addresses), if different than the Holder, in which such Holder wishes the certificate or certificates for Common Stock to be issued. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the securities (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at such office or place to such Holder of a Security, or to such Holder's nominee or nominees, certificates for the number of full shares of Common Stock to which such Holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share to which such Holder would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Common Stock while the stock transfer books for such stock or the Security Register are duly closed for any purpose, but certificates for shares of Common Stock shall be issued and delivered as soon as practicable after the opening of such books or Security Register. A Security shall be deemed to have been converted as of the close of business on the date of the surrender of such Security for conversion as provided above, and at such time the rights of the Holders of such Security as Holder shall cease, the Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Common Stock immediately prior to the close of business on such date. In case any Security shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Securities so surrendered, without charge to such Holder (subject to the provisions of Section 14.08), a new 74 Security or securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Security. SECTION 14.03. Adjustment of Conversion Rate. ------------------------------ The Conversion Rate with respect to any Security which is convertible into Common Stock shall be adjusted from time to time as follows: (1) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, (i) pay a dividend in shares of its Common Stock to holders of Common Stock, (ii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, (iii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock or (iv) make a distribution in shares of Common Stock to holders of Common Stock, then the Conversion Rate in effect immediately before such action shall be adjusted so that the Holders of such Securities, upon conversion thereof into Common Stock immediately following such event, shall be entitled to receive the kind and amount of shares of capital stock of the Company which they would have owned or been entitled to receive upon or by reason of such event if such Securities had been converted immediately before the record date (or, if no record date, the effective date) for such event. An adjustment made pursuant to this Section 14.03(1) shall become effective retroactively immediately after the record date in the case of a dividend or distribution and shall become effective retroactively immediately after the effective date in the case of a subdivision or combination. For the purposes of this Section 14.03(1), each Holder of Securities shall be deemed to have failed to exercise any right to elect the kind or amount of securities receivable upon the payment of any such dividend, subdivision, combination or distribution (provided that if the kind or amount of securities receivable upon such dividend, subdivision, combination or distribution is not the same for each non-electing share, then the kind and amount of securities or other property receivable upon such dividend, subdivision, combination or distribution for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). (2) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, issue rights or warrants to all holders of shares of its Common Stock entitling them (for a period expiring within 45 days after the record date for such issuance) to subscribe for or purchase shares of Common Stock (or securities convertible into shares of Common Stock) at a price per share less than the Current Market Price of the Common Stock at such record date (treating the price per share of the securities convertible into Common Stock as equal to (x) the sum of (i) the price for a unit of the security convertible into Common Stock and (ii) any additional consideration initially payable upon the conversion of such security into Common Stock divided by (y) the number of shares of Common Stock initially underlying such convertible security), the Conversion Rate with respect to such Securities shall be adjusted so that it shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the date of issuance of such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on 75 the date of issuance of such rights or warrants plus the number of shares or securities which the aggregate offering price of the total number of shares or securities so offered for subscription or purchase (or the aggregate purchase price of the convertible securities so offered plus the aggregate amount of any additional consideration initially payable upon conversion of such securities into Common Stock) would purchase at such Current Market Price of the Common Stock, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are initially convertible). Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. (3) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, distribute to all holders of shares of its Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Common Stock is not changed or exchanged) cash, evidences of its indebtedness, securities or assets (excluding (i) dividends payable in shares of Common Stock for which adjustment is made under Section 14.03(1), (ii) rights or warrants to subscribe for or purchase securities of the Company for which adjustment is made under Section 14.03(2), (iii) dividends or distributions paid exclusively in cash and (iv) distributions referred to in Section 14.03(4)), then in each such case the Conversion Rate with respect to such Securities shall be adjusted so that it shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of holders of shares of Common Stock entitled to receive such distribution by a fraction, the numerator of which shall be the Current Market Price of the Common Stock on the date fixed for determination of holders of shares of Common Stock entitled to receive such distribution less the then fair market value (as determined by the Board of Directors of the Company, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee) of the portion of the cash or assets or evidences of indebtedness or securities so distributed or of such subscription rights or warrants applicable to one share of Common Stock, and the denominator of which shall be such Current Market Price; provided, however, that no adjustment shall be made with respect to any distribution of rights to purchase securities of the Company if a Holder of Securities would otherwise be entitled to receive such rights upon conversion at any time of such Securities into Common Stock unless such rights are subsequently redeemed by the Company, in which case such redemption shall be treated for purposes of this section as a dividend on the Common Stock. Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such distribution; and in the event that such distribution is not so made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such record date had not been fixed. (4) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or 76 consolidation to which Section 14.04 applies or as part of a distribution referred to in Section 14.03(3)) in an aggregate amount that, combined together with: (i) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this Section 14.03(4) has been made, and (ii) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee) of consideration payable in respect of any tender offer by the Company or any of its Subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to Section 14.03(5) has been made (the amount of such cash distribution together with the amounts described in clause (i) above and this clause (ii) being referred to herein as the "Aggregate Cash Distribution Amount"), exceeds 10% of the product of (x) the Current Market Price of the Common Stock on the date fixed for determination of holders of shares of Common Stock entitled to receive such distribution, times (y) the number of shares of Common Stock outstanding on such date (the "Aggregate Current Market Price"), then, and in each such case, immediately after the close of business on the date fixed for such determination, the Conversion Rate with respect to such Securities shall be adjusted so that it shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of holders of shares of Common Stock entitled to receive such distribution by a fraction, the numerator of which shall be the Current Market Price of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (A) the excess of such Aggregate Cash Distribution Amount over 10% of such Aggregate Current Market Price divided by (B) the number of shares of Common Stock outstanding on the date fixed for such determination, and the denominator of which shall be the Current Market Price of the Common Stock on the date fixed for such determination. (5) In case a tender offer made by the Company or any of its Subsidiaries for all or any portion of the Common Stock shall expire and any such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based upon the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive) that, combined together with: (i) the aggregate of cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer by the Company or any of its Subsidiaries for all or any portion of the Common Stock 77 concluded within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 14.03(4) has been made, and (ii) the aggregate amount of any distributions to all holders of the Common Stock made exclusively in cash with the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 14.03(4) has been made (the amount of such cash distribution together with the amounts described in clause (i) above and this clause (ii) being referred to herein as the "Aggregate Tender Distribution Amount"), exceeds 10% of the product of (x) the Current Market Price of the Common Stock as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended), times (y) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate with respect to such Securities shall be adjusted so that it shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date of the Expiration Time by a fraction, the numerator of which shall be equal to the product of (A) the Current Market Price of the Common Stock on the date of the Expiration Time multiplied by (B) the number of shares of Common Stock outstanding (including any tendered shares) on the date of the Expiration Time, less the Aggregate Tender Distribution Amount, and the denominator of which shall be equal to the product of (A) the Current Market Price of the Common Stock on the date of the Expiration Time multiplied by (B) the difference between the number of shares of Common Stock outstanding (including any tendered shares) on the date of the Expiration Time and the number of all shares validly tendered and not withdrawn as of the Expiration Time. (6) The Company shall be entitled to make such additional adjustments in the Conversion Rate, in addition to those required by subsections 14.03(1), 14.03(2), 14.03(3), 14.03(4) and 14.03(5), as shall be necessary in order that any dividend or distribution of Common Stock, any subdivision, reclassification or combination of shares of Common Stock or any issuance of rights or warrants referred to above shall not be taxable to the holders of Common Stock for United States Federal income tax purposes. (7) In any case in which this Section 14.03 shall require that any adjustment be made effective as of or retroactively immediately following a record date, the Company may elect to defer (but only for five (5) Trading Days following the filing of the statement referred to in Section 14.05)) issuing to the Holder of any Securities converted after such record date the shares of Common Stock and other capital stock of the Company issuable upon such conversion over and above the shares of Common Stock and other capital stock of the company issuable upon such conversion on the basis of the Conversion Rate prior to adjustment; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's right 78 to receive such additional shares upon the occurrence of the event requiring such adjustment. (8) All calculations under this Section 14.03 shall be made to the nearest cent or one-hundredth of a share or security, with one-half cent and 0.005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 14.03, the Company shall not be required to make any adjustment of the Conversion Rate unless such adjustment would require an increase or decrease of at least 1% of such rate. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% in such rate. Any adjustments under this Section 14.03 shall be made successively whenever an event requiring such an adjustment occurs. (9) In the event that at any time, as a result of an adjustment made pursuant to this Section 14.03, the Holder of any Security thereafter surrendered for conversion shall become entitled to receive any shares of stock of the Company other than shares of Common Stock into which the Securities originally were convertible, the Conversion Rate of such other shares so receivable upon conversion of any such Security shall be subject to adjustment from time to tine in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Article XIV with respect to the Common Stock shall apply on like or similar terms to any such other shares and the determination of the Board of Directors as to any such adjustment shall be conclusive. (10) No adjustment shall be made pursuant to this Section, subject to 14.03(7) hereof, with respect to any Security that is converted prior to the time such adjustment otherwise would be made. (11) To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least 20 days, the increase is irrevocable during such period, and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive and described in a Board Resolution filed with the Trustee; provided, however, that no such increase shall be taken into account for purposes of determining whether the Closing Price Per Share of the Common Stock exceeds the Conversion Price by 105% in connection with an event which would otherwise be a Change of Control. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall give notice of the increase to the Holders in the manner provided in Section 1.06 at least 15 days prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect. SECTION 14.04. Consolidation, Sale of Assets or Merger of the Company. ------------------------------------------------------- In case of either (a) any consolidation or merger to which the Company is a party, other than a merger or consolidation in which the company is the surviving or continuing 79 corporation and which does not result in a reclassification of, cancellation of or change (other than a change in par value or from par value to no par value or from no par value to par value, as a result of a subdivision or combination) in, outstanding shares of Common Stock or (b) any sale or conveyance of all or substantially all of the property and assets of the Company to another Person, then each Security then outstanding shall be convertible from and after such merger, consolidation, sale or conveyance of property and assets into the kind and amount of shares of stock or other securities and property (including cash) receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock into which such Securities would have been converted immediately prior to such consolidation, merger, sale or conveyance, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XIV (and assuming such holder of Common Stock failed to exercise his rights of election, if any, as to the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance (provided that, if the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance is not the same for each nonelecting share, then the kind and amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares or securities)). The Company shall not enter into any of the transactions referred to in clause (a) or (b) of the preceding sentence unless effective provision shall be made so as to give effect to the provisions set forth in this Section 14.04. The provisions of this Section 14.04 shall apply similarly to successive consolidations, mergers, sales or conveyances. SECTION 14.05. Notice of Adjustment of Conversion Rate. ---------------------------------------- Whenever an adjustment in the Conversion Rate with respect to a series of Securities is required: (1) the Company shall compute the adjusted Conversion Rate in accordance with Section 14.04 and forthwith place on file with the Trustee and any Conversion Agent for such Securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Rate determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment, such certificate to be conclusive evidence that the adjustment is correct; and (2) a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate shall forthwith be required, and as soon as practicable after it is required, such notice shall be mailed, first class postage prepaid, by the Company to the Holders of such Outstanding Securities at their last addresses as they shall appear in the Security Register. 80 SECTION 14.06. Notice in Certain Events. ------------------------- In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 14.03; (b) the Company shall authorize the granting to the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; (c) of any reclassification of the Common Stock of the company (other than a subdivision or combination of its outstanding Common Stock), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the company is required, or of the sale or transfer of all or substantially all of the assets of the Company; (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; (e) the Company or any Subsidiary of the Company shall commence a tender offer for all or a portion of the Company's outstanding Common Stock (or shall amend any such tender offer); (f) of a consolidation or merger to which the company is a party and for which approval of any stockholders of the company is required, or of the sale or conveyance to another Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership, syndicate or other group (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of all or substantially all of the property and assets of the Company; or (g) of any action triggering an adjustment of the Conversion Rate pursuant to this Article XIV not otherwise specified in this Section 14.06; then, in each case, the Company shall cause to be filed with the Trustee and the Conversion Agent for the applicable Securities, and shall cause to be mailed, first class postage prepaid, to the Holders of record of applicable securities, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of any dividend distribution or grant of rights, options or warrants triggering an adjustment to the Conversion Rate pursuant to this Article XIV, or, if a record is not to be taken, the date as of which the holders of record of Common Stock entitled to such dividend distribution, rights, options or warrants are to be determined, or (y) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation, tender offer or winding up triggering an adjustment to the Conversion Rate pursuant to this Article XIV is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities, tender offer or other property deliverable upon such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation, cash or winding up. 81 Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section. SECTION 14.07. Company To Reserve Stock: Registration; Listing. ------------------------------------------------ (a) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Securities, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all applicable outstanding securities into such Common Stock at any time (assuming that, at the time of the computation of such number of shares or securities, all such Securities would be hold by a single holder); provided, however, that nothing contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of the Securities by delivery of purchased shares of Common Stock which are held in the treasury of the Company. The Company shall from time to time, in accordance with the laws of the State of Delaware, use its best efforts to cause the authorized amount of the Common Stock to be increased if the aggregate of the authorized amount of the Common Stock remaining unissued and the issued shares of such Common Stock in its treasury (other than any such shares reserved for issuance in any other connection) shall not be sufficient to permit the conversion of all Securities. (b) If any shares of Common Stock which would be issuable upon conversion of Securities hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will in good faith and as expeditiously as possible endeavor to cause such shares or securities to be duly registered or approved, as the case may be. The Company will endeavor to list the shares of Common Stock required to be delivered upon conversion of the Securities prior to such delivery upon the principal national securities exchange upon which the outstanding Common Stock is listed at the time of such delivery. SECTION 14.08. Taxes on Conversion. -------------------- The Company shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or the portion, if any, of the Securities which are not so converted in a name other than that in which the securities so converted were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid. SECTION 14.09. Conversion After Record Date. ----------------------------- If any Securities are surrendered for conversion subsequent to the record date preceding an Interest Payment Date but on or prior to such Interest Payment Date (except Securities called for redemption on a Redemption Date between such record date and such Interest Payment Date), the Holder of such Securities at the close of business on such record date 82 shall be entitled to receive the interest payable on such Securities on such Interest Payment Date notwithstanding the conversion thereof. Securities surrendered for conversion during the period from the close of business on any record date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Securities which have been called for redemption on a Redemption Date within such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the securities being surrendered for conversion. Subject to the provisions of Section 3.07 relating to the payment of Defaulted Interest by the Company, the interest payment with respect to a Security called for redemption on a Redemption Date during the period from the close of business on any regular record date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall be payable on such Interest Payment Date to the Holder of such Security at the close of business on such regular record date notwithstanding the conversion of such Security after such Regular Record Date and prior to such Interest Payment Date, and the Holder converting such Security need not include a payment of such interest payment amount upon surrender of such Security for conversion. Except as provided in this Section 14.09, no adjustments in respect of payments of interest on securities surrendered for conversion or any dividends or distributions or interest on the Common Stock issued upon conversion shall be made upon the conversion of any Securities. SECTION 14.10. Corporate Action Regarding Par Value of Common Stock. ----------------------------------------------------- The Company agrees that all shares of Common Stock which may be issued upon conversion of the Securities will, upon issuance, have been duly authorized and validly issued and will be fully paid and nonassessable and, except as provided in Section 14.08, the Company will pay all taxes, liens and charges with respect to the issue thereof. SECTION 14.11. Company Determination Final. ---------------------------- Any determination that the Company or the Board of Directors must make pursuant to this Article is conclusive. SECTION 14.12. Trustee's Disclaimer. --------------------- The Trustee has no duty to determine when an adjustment under this Article should be made, how it should be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section as the Trustee. 83 ARTICLE XV DEFEASANCE AND COVENANT DEFEASANCE SECTION 15.01. Applicability of Article; Company's Option to Effect Defeasance --------------------------------------------------------------- or Covenant Defeasance. ----------------------- Unless pursuant to Section 3.01 provision is made for the inapplicability of either or both of (a) defeasance of the Securities of a series under Section 15.02 or (b) covenant defeasance of the Securities of a series under Section 15.03, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article, shall be applicable to the Securities of such series, and the Company may at its option by Board Resolution, at any time, with respect to the Securities of such series, elect to have either Section 15.02 (unless inapplicable) or Section 15.03 (unless inapplicable) be applied to the Outstanding Securities of such series upon compliance with the applicable conditions set forth below in this Article. SECTION 15.02. Defeasance and Discharge. ------------------------- Upon the Company's exercise of the option provided in Section 15.01 to defease the Outstanding Securities of a particular series, the Company shall be discharged from its obligations with respect to the Outstanding Securities of such series on the date the applicable conditions set forth in Section 15.04 are satisfied (hereinafter, "defeasance"). Defeasance shall mean that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same); provided, however, that the following rights, obligations, powers, trusts, duties and immunities shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Securities of such series to receive, solely from the trust fund provided for in Section 15.04, payments in respect of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 3.04, 3.05, 3.06, 10.02 and 10.09, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder, (D) the rights of Holders of Outstanding Securities of such series to convert such Securities under Article XIV and (E) this Article. Subject to compliance with this Article, the Company may exercise its option with respect to defeasance under this Section 15.02 notwithstanding the prior exercise of its option with respect to covenant defeasance under Section 15.03 in regard to the Securities of such series. SECTION 15.03. Covenant Defeasance. -------------------- Upon the Company's exercise of the option provided in Section 15.01 to obtain a covenant defeasance with respect to the Outstanding Securities of a particular series, the Company shall be released from its obligations under this Indenture (except its obligations under Sections 3.04, 3.05, 3.06, 5.06, 5.09, 6.10, 10.01, 10.02, 10.06, 10.08 and 10.09 and Article XIV) with respect to the Outstanding Securities of such series on and after the date the applicable conditions set forth in Section 15.04 are satisfied (hereinafter, "covenant defeasance"). Covenant defeasance shall mean that, with respect to the Outstanding Securities of such series, 84 the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in this Indenture (except its obligations under Sections 3.04, 3.05, 3.06, 5.06, 5.09, 6.10, 10.01, 10.02, 10.06, 10.08 and 10.09 and Article XIV), whether directly or indirectly by reason of any reference elsewhere herein or by reason of any reference to any other provision herein or in any other document, and such omission to comply shall not constitute an Event of Default under Section 5.01(4) with respect to Outstanding Securities of such series, and the remainder of this Indenture and of the Securities of such series shall be unaffected thereby. SECTION 15.04. Conditions to Defeasance or Covenant Defeasance. ------------------------------------------------ The following shall be the conditions to defeasance under Section 15.02 and covenant defeasance under Section 15.03 with respect to the Outstanding Securities of a particular series: (1) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article applicable to it), under the terms of an irrevocable trust agreement in form and substance reasonably satisfactory to such Trustee, as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) dollars in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any, on) and each installment of principal of (and premium, if any) and interest on the Outstanding Securities of such series on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities. (2) No Default or Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit, and no Default or Event of Default under clause (5) or (6) of Section 5.01 hereof shall occur and be continuing, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such deposit, defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. 85 (4) Such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any national securities exchange registered under the Exchange Act to be delisted. (5) In the case of an election with respect to Section 15.02, the Company shall have delivered to the Trustee either (A) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such 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 defeasance had not occurred or (B) an Opinion of Counsel, based on such ruling or on a change in the applicable federal income tax law since the date of this Indenture, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such 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 defeasance had not occurred. (6) In the case of an election with respect to Section 15.03, the Company shall have delivered to the Trustee an Opinion of Counsel or a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Outstanding Securities of such series 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. (7) Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 3.01. (8) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 15.02 or the covenant defeasance under Section 15.03 (as the case may be) have been complied with. SECTION 15.05. Deposited Money and Government Obligations To Be Held In Trust. -------------------------------------------------------------- Subject to the provisions of the last paragraph of Section 10.09, all money and Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively for purposes of this Section 15.05, the "Trustee") pursuant to Section 15.04 in respect of the Outstanding Securities of a particular series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. 86 The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 15.04 or the principal and interest received in respect thereof, other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities of such series. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations held by it as provided in Section 15.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited for the purpose for which such money or Government Obligations were deposited. ARTICLE XVI SECURITYHOLDERS' MEETINGS SECTION 16.01. Purposes for Which Meetings May Be Called. ------------------------------------------ A meeting of Holders of Securities of any or all series may be called at any time and from time to time pursuant to the provisions of this Article for any of the following purposes: (1) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Holders of Securities of any or all series, as the case may be, pursuant to any of the provisions of Article V; (2) to remove the Trustee and appoint a successor trustee pursuant to the provisions of Article VI; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.02; or (4) to take any other action authorized to be taken by or on behalf of the Holders of any specified principal amount of the Securities of any or all series, as the case may be, under any other provision of this Indenture or under applicable law. SECTION 16.02. Manner of Calling Meetings. --------------------------- The Trustee may at any time call a meeting of Securityholders to take any action specified in Section 16.01, to be held at such time and at such place in the City of Wilmington, Delaware, as the Trustee shall determine. Notice of every meeting of Securityholders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed not less than 20 nor more than 60 days prior to the date fixed for the meeting. 87 SECTION 16.03. Call of Meeting by the Company or Securityholders. -------------------------------------------------- In case at any time the Company pursuant to a Board Resolution or the Holders of not less than 10% in principal amount of the Securities of any or all series, as the case may be, then Outstanding, shall have requested the Trustee to call a meeting of Holders of Securities of any or all series, as the case may be, to take any action authorized in Section 16.01 by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of such meeting within 20 days after receipt of such request, then the Company or such Holders of Securities in the amount above specified may determine the time and place in either the City of ____________________ or the City of ____________________ for such meeting and may call such meeting to take any action authorized in Section 16.01, by mailing (and publishing, if required) notice thereof as provided in Section 16.02. SECTION 16.04. Who May Attend and Vote at Meetings. ------------------------------------ To be entitled to vote at any meeting of Securityholders, a Person shall be (a) a Holder of one or more Securities with respect to which the meeting is being held or (b) a Person appointed by an instrument in writing as proxy by such Holder of one or more Securities. The only Persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 16.05. Regulations May Be Made by Trustee; Conduct of the Meeting; ----------------------------------------------------------- Voting Rights - Adjournment. ---------------------------- Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. Except as otherwise permitted or required by any such regulations, the holding of Securities and the appointment of any proxy shall be proved in the manner specified in Section 3.08; provided, however, that such regulations may provide that written instruments appointing proxies regular on their face, may be presumed valid and genuine without the proof herein above or in said Section 3.08 specified. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 16.03, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote of the meeting. At any meeting each Securityholder or proxy shall be entitled to one vote for each $1,000 principal amount (in the case of Original Issue Discount Securities, such principal amount shall be equal to such portion of the principal amount as may be specified in the terms of such series) of Securities held or represented by such Holder; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding 88 and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by such Person or instruments in writing as aforesaid duly designating such Person as the Person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 16.02 or 16.03 may be adjourned from time to time, and the meeting may be held so adjourned without further notice. At any meeting of Securityholders, the presence of Persons holding or representing Securities in principal amount sufficient to take action on the business for the transaction of which such meeting was called shall constitute a quorum, but, if less than a quorum is present, the Persons holding or representing a majority in principal amount of the Securities represented at the meeting may adjourn such meeting with the same effect for all intents and purposes, as though a quorum had been present. SECTION 16.06. Manner of Voting at Meetings and Record to Be Kept. --------------------------------------------------- The vote upon any resolution submitted to any meeting of Securityholders shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amount or amounts of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 16.02. The record shall show the principal amount or principal amounts of the Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one copy thereof shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. Any record so signed and verified shall be conclusive evidence of the matters therein stated. SECTION 16.07. Exercise of Rights of Trustee and Securityholders Not to Be ----------------------------------------------------------- Hindered or Delayed. -------------------- Nothing in this Article XVI contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Securityholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrances or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Securityholders under any of the provisions of this Indenture or of the Securities. 89 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. HANOVER COMPRESSOR COMPANY By /s/ William S. Goldberg ---------------------------------------- Name: William S. Goldberg Title: Chief Financial Officer [SEAL] Attest: /s/ Richard S. Meller - --------------------------------- Name: Richard S. Meller Title: Secretary WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Trustee By /s/ [illegible] ---------------------------------------- Name: Title: [SEAL] Attest: /s/ Anita Dallago - --------------------------------- Name: Anita Dallago Title: Financial Services Officer 90 STATE OF DELAWARE ) ) SS.: COUNTY OF NEW CASTLE ) On the 19th day of March, 2001, before me personally came James P. Lawler, to me known, who, being by me duly sworn, did depose and say that he is Vice President of Wilmington Trust Company, one of the parties described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Leigh Emmi -------------------------------------- Leigh Emmi Notary Public My commission expires: August 1, 2002 91 EX-4.8 5 h12863exv4w8.txt FORM OF 4.75% CONVERTIBLE SENIOR NOTES EXHIBIT 4.8 THIS SECURITY IS IN GLOBAL FORM WITHIN THE MEANING of THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A COMMON DEPOSITARY OR A U.S. DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN CERTIFICATED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE COMMON DEPOSITARY OR A U.S. DEPOSITARY OR BY A NOMINEE OF THE COMMON DEPOSITARY OR A NOMINEE OF THE U.S. DEPOSITARY AS THE CASE MAY BE. HANOVER COMPRESSOR COMPANY ---------------------- CUSIP No. 410768 AC 9 Reg. No. 0001 $192,000,000 HANOVER COMPRESSOR COMPANY, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of One Hundred Ninety Two Million Dollars ($192,000,000) on March 15, 2008, and to pay interest thereon from March 21, 2001 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 2001, at the rate of 4.75% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) on this Security may be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, the City of New York, in Dollars, by Dollar check mailed to the address of the Per\son entitled thereto as such address shall appear in the Security Register or by transfer to a Dollar account. Payment of interest on this Security may be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, the City of New York, in Dollars, by Dollar check mailed to the address of the Person entitled there to as such address shall appear in the Security Register or, upon written application by the Holder to the Security Registrar setting forth wire instructions not later than the relevant Regular Record Date or Special Record Date, as the case may be, by transfer to a Dollar account; provided, however, that transfers to Dollar accounts will be made only to Holders of an aggregate principal amount of Securities in excess of $2,000,000. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: March 21,2001 HANOVER COMPRESSOR COMPANY [SEAL] By: ------------------------- Name: Title: Attest: --------------------- Name: Title: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Wilmington Trust Company, As Trustee By: ------------------------- Authorized Signatory 2 [Reverse of Security] This Security is one of a duly authorized issue of securities of the company (herein called the "Securities"), issued and to be issued in one or more Series under [ILLEGIBLE] dated as of March 15, 2001 (herein called the "Indenture"), between the Company and Wilmington Trust Company, as Trustee (herein called the "Trustee," which term [ILLEGIBLE] successor trustee under the Indenture), to which Indenture and all indentures [ILLEGIBLE] thereto Reference is hereby made for a statement of the respective rights, limitations of [ILLEGIBLE] duties and immunities thereunder of the Company, the Trustee and the Holders of the [ILLEGIBLE] and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $192,000,000. The Securities of this series are subject to redemption upon not less than 30 nor more than 60 days' notice by first class mail, at any time on or after March 15, 2004, as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed during the 12-month period beginning on:

and thereafter at a Redemption Price equal to 100% of the principal amount, together in the case of any such redemption with accrued and unpaid interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at such Holder's option, at any time following the original issue date of the Securities of this series and on or before the close of business on the Business Day immediately preceding March 15, 2008, or in case this Security or a portion hereof is called for redemption or the Holder hereof has exercised his or her right to require the Company to repurchase this Security or such portion hereof, then in respect of this Security until but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on Business Day immediately preceding the Redemption Date or the Repurchase Date, as the case may be, to convert this Security (or any portion of the principal amount hereof that is an integral multiple of $1,000, provided that the unconverted portion of such principal amount is at least $1,000) into fully paid and nonassessable shares of Common Stock of the Company at an initial Conversion Rate of 22.7596 shares of Common Stock for each $1,000 principal amount of Securities of this series (or at the current adjusted Conversion Rate if an adjustment has been made as provided in the Indenture, including pursuant 3 to Section 14.03(2)) by surrender of this Security, duly endorsed or assigned to the Company or in blank and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date [(except if this Security or portion thereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date and the conversion rights of this Security, or such portion thereof, would terminate during the period between such Regular Record Date and the close of business on such Interest Payment Date), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed, to the Company at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company, subject to any laws or regulations applicable thereto and subject to the right of the Company to terminate the appointment of any Conversion Agent as may be designated by it for such purpose, in the Borough of Manhattan, The City of New York, or at such other offices or agencies as the Company may designate; provided however, that if this Security or portion hereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date and the conversion rights of this Security, or such portion thereof, would terminate during the period between such Regular Record Date and the close of business on such Interest Payment Date, then the Holder of this Security on such Regular Record Date will be entitled to receive the interest accruing hereon from the Interest Payment Date next preceding the date of such conversion to such succeeding Interest Payment Date and the Holder of this Security who converts this Security or a portion hereof during such period shall not be required to pay such interest upon surrender of this Security for conversion. Subject to the provisions of the preceding sentence and, in the case of a conversion after the close of business on the Regular Record Date next preceding any Interest Payment Date and on or before the close of business on such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security of record as of such Regular Record Date) to receive the related installment of interest to the extent and under the circumstances provided in the Indenture, no cash payment or adjustment is to be made on conversion for interest accrued hereon from the Interest Payment Date next preceding the day of conversion, or for dividends on the Common Stock issued on conversion hereof. The Company shall thereafter deliver to the Holder the fixed number of shares of Common Stock (together with any cash adjustment, as provided in the Indenture) into which this Security is convertible and such delivery will be deemed to satisfy the Company's obligation to pay the principal amount of this Security. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest (calculated to the nearest l/100th of a share) the Company shall pay a cash adjustment as provided in the Indenture. The Conversion Rate is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party (other than a consolidation or merger that does not result in any reclassification, conversion, exchange or cancellation of the Common Stock) or the conveyance, transfer, sale or lease of all or substantially all of the property and assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities of this series, so that this Security, if then Outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance transfer, sale or 4 lease by a holder of the number of shares of Common Stock of the Company into which this Security could have been converted immediately prior to such consolidation, merger, conveyance, transfer, sale or lease (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares and further assuming, if such consolidation, merger, conveyance, transfer, sale or lease occurs prior to the original issue date of the Securities of this series, that this Security was convertible at the time of such occurrence at the Conversion Rate specified above as adjusted from the issue date of such Security to such time as provided in the Indenture). No adjustment in the Conversion Rate will be made until such adjustment would require an increase or decrease of at least 1% of such price, provided that any adjustment that would Otherwise be made, but for the application of the foregoing, will be carried forward and taken into account in the computation of any subsequent adjustment. If a Change in Control occurs, the Holder of this Security, at the Holder's option, shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase this Security (or any portion of the principal amount hereof that is equal to $1,000 or an integral multiple of $1,000 in excess thereof) for cash at a Repurchase Price equal to 100% of the principal amount thereof plus interest accrued to the Repurchase Date. At the option of the company, the Repurchase Price may be paid in cash or, subject to the conditions provided in the Indenture, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price. For purposes of this paragraph, the fair market value of shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Share for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Repurchase Date. Whenever in this Security there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Security shall not be construed as excluding the Repurchase Price so payable in those provisions of this Security when such express mention is not made; provided, however, that, for the purposes of the second succeeding paragraph, such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. In the event of redemption, repurchase or conversion of this Security in part only, a new Security or Securities of this series for the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If any Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. This Security is not subject to defeasance as described in the Indenture. The Indenture may be modified by the Company and the Trustee without consent of any Holder with respect to certain matters as described in the Indenture, in addition, the Indenture permits, with certain exceptions as therein provided. the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the 5 Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall bind such Holder and all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same Stated Maturity and aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture imposes certain limitations on the ability of the Company to, among other things, merge or consolidate with any other Person or sell, assign, transfer or lease all or substantially all of its properties or assets. All such covenants and limitations are subject to a number of important qualifications and exceptions. The Company must report periodically to the Trustee on compliance with the covenants in the Indenture. 6 A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under this Security or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder, by accepting a Security, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Security. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures ("CUSIP"), the Company has caused CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. No representation is made as to the correctness or accuracy of such numbers as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 7 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to: ________________________________________________________________________________ (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ ____________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: _________ Your Signature: _________________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranty: ____________________________________________________________ [Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Transfer Agent, which requirements will include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act.] Social Security Number or Taxpayer Identification Number: _________________________________________________ 8 FORM OF CONVERSION NOTICE The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or any portion of the principal amount hereof (which is $1,000 or an integral multiple of $1,000 in excess thereof, provided that the unconverted portion of such principal amount is at least $1,000) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that such shares, together with a check in payment for any fractional share and any Securities representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If shares of Common Stock or Securities are to be registered in the name of a Person other than the undersigned, (a) the undersigned will pay all applicable transfer taxes payable with respect thereto and (b) signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Dated: ____________________ ________________________________ ________________________________ Signature(s) If shares or Securities are to be registered in the name of a Person other than the Holder, please print such Person's name and address: Name Address Social Security or other Identification Number, if any ________________________ Signature Guaranteed If only a portion of the Securities is to be converted, please indicate: 1. Principal amount to be converted: $ __________________ 2. Principal amount and denomination of Securities representing unconverted principal amount to be issued: $________________ ($1,000 or any integral multiple of $1,000 in excess thereof, provided that the unconverted portion of such principal amount is at least $1,000) 9 FORM OF ELECTION OF HOLDER TO REQUIRE REPURCHASE. Pursuant to Article XII of the Indenture, the undersigned hereby elects to have this Security repurchased by the Company. The undersigned hereby directs the Trustee or the Company to pay to the undersigned an amount in cash or, at the Company's election, Common Stock valued as set forth in the Indenture, equal to 100% of the principal amount to be repurchased (as set forth below), plus interest accrued to the Repurchase Date, as provided in the Indenture. Dated:___________________ ________________________________ ________________________________ Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-l5 under the Securities Exchange Act of 1934. ________________________________ Signature Guaranteed Principal amount to be repurchased (at least $1,000 or an integral multiple $l,000 in excess thereof):_____________________________________ Remaining principal amount following such repurchase (not less than $1,000): ______________________________________ NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Note in every particular, without alteration or any change whatsoever. 10 EX-4.10 6 h12863exv4w10.txt FORM OF 8.50% SENIOR SECURED NOTES EXHIBIT 4.10 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATIONS UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(l), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST ISSUER, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. No. 001 Principal Amount $590,000, as revised by the Schedule of Increases and Decreases in Global Security attached hereto CUSIP No. U24466AA9 Regulation S Global Note 8.50% Senior Secured Notes due 2008 Hanover Equipment Trust 2001 A, a Delaware business trust, promises to pay to Cede & Co., or registered assigns, the principal sum of Five Hundred Ninety Thousand Dollars, as revised by the Schedule of Increases and Decreases in Global Security attached hereto, on September 1, 2008. Interest Payment Dates: March 1 and September 1 Record Dates: February 15 and August 15 Additional provisions of this Security are set forth on the other side of this Security. HANOVER EQUIPMENT TRUST 2001A By: ---------------------------- Name: David A. Vanaskey Jr. Title: Vice President TRUSTEE'S CERTIFICATE OF AUTHENTICATION WILMINGTON TRUST FSB, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: ----------------------------------- Authorized Signatory Date: August 30, 2001 8.50% Senior Secured Note due 2008 1. Interest Hanover Equipment Trust 2001A, a Delaware business trust (such business trust, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Issuer"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Issuer will pay interest semiannually in arrears on March 1 and September 1 of each year commencing March 1, 2002. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from September 1, 2001. The Issuer shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By at least 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Issuer shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Issuer will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the February 15 or August 15 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Issuer will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Issuer will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also be made, in the case of a Holder of a least $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Paying Agent and Registrar Initially, Wilmington Trust FSB (the 'Trustee"), will act as Trustee, Paying Agent and Registrar. The Issuer may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Issuer or any of its Restricted Subsidiaries may act as Paying Agent, Registrar or co-registrar. 5 4. Indenture The Issuer issued the Securities under an Indenture dated as of August 30,2001 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), among the Issuer, the Hanover Guarantors and the Trustee, and a Participation Agreement dated as of August 30, 2001 (the "Participation Agreement") among the Issuer, the Lessee, the Certificate Holders named therein, the Hanover Guarantors, the Trustee and Wilmington Trust Company. The terms of the Securities include those stated in the Indenture and the Participation Agreement and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are secured senior obligations of the Issuer limited to $300 million aggregate principal amount (subject to Section 2.2 of the Indenture). This Security is one of the Original Securities (also referred to as Initial Securities) referred to in the Indenture. The Initial Securities and the Exchange Securities will be treated as a single class of securities under the Indenture. The Indenture and the Participation Agreement impose certain limitations on, among other things: the Incurrence of Indebtedness by the Issuer or Hanover or its Restricted Subsidiaries, the purchase or redemption of Capital Stock of Hanover, the Incurrence of Liens by the Issuer or Hanover or its Restricted Subsidiaries, the sale of transfer of assets and Capital Stock of Restricted Subsidiaries of Hanover, the issuance or sale of Capital Stock of Restricted Subsidiaries of Hanover, the business activities and investments of the Issuer, mergers and consolidation of Hanover, and transactions with Affiliates of Hanover and its Restricted Subsidiaries. In addition, the Participation Agreement limits the ability of Hanover and its Restricted Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. To guarantee the due and punctual payment of the principal, premium, if any, and interest on the Securities and all other amounts payable by the Issuer under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Hanover Guarantors will have unconditionally guaranteed, upon the release of escrowed funds pursuant to an Escrow Agreement, dated as of August 30, 2001 (the "Escrow Agreement"), among the Issuer, Hanover Equipment Trust 2001B and Wilmington Trust Company, as escrow agent, (and future Hanover Guarantors, together with the Hanover Guarantors, will unconditionally guarantee) jointly and severally, upon the occurrence of and during a Lease Event of Default, such obligations on a senior subordinated basis pursuant to the terms of a Guarantee, to be dated as of the date the escrowed funds are released pursuant to the Escrow Agreement, by the Hanover Guarantors. 5. Redemption Except as set forth below, the Securities will not be redeemable at the option of the Issuer prior to September 1, 2005. On and after such date, the Issuer may redeem all or, from time to time, a part of the Securities upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address and in accordance with the provisions of Section 20.1 of the Lease, at the following redemption prices (expressed in 6 percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on September 1 of the years set forth below:

Prior to September 1, 2004, to the extent that Hanover raises Net Cash Proceeds from one or more Public Equity Offerings and such Net Cash Proceeds are contributed toward an Equipment Purchase (as defined below), the Issuer may on any one or more occasions redeem up 1 to 35% of the original principal amount of the Securities with the proceeds from an Equipment 1 Purchase in accordance with the provisions of Section 20.l(b) of the Lease at a redemption price 1 (expressed as a percentage of principal amount) of 108.50% plus accrued and unpaid interest, if I any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at-least 65% of the original principal amount of the Securities must remain outstanding after each such redemption; provided further, that each such redemption occurs within 60 days of the date of closing of such Public Equity Offering. In each case, the Issuer will redeem the Securities with the proceeds from the Lessee's purchase of the Issuer's Equipment (the "Equipment Purchase"), in accordance with Sections 20.1 (a) or 20.1(b), as applicable, of the Lease. In the case of any partial redemption, selection of the Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not listed, then on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Securities of $1,000 in original principal amount or less will be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption relating to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security. On and after the redemption date, interest will cease to accrue on Securities or portions thereof called for redemption as long as the Issuer has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. If, in the sole judgment of the trustee of the Issuer prior to the POI Acquisition (defined below), the acquisition by the Lessee and its affiliates of Production Operators Corporation and certain other assets of Schlumberger Limited ("Schlumberger") and its affiliates, pursuant to that certain Purchase Agreement dated as of June 28, 2001 by and among Hanover Compression Limited Partnership, Schlumberger and the other parties named therein (the "POI Acquisition"), will not be consummated by November 15, 2001, the Issuer may at its option at any time before November 1, 2001 redeem all, but not less than all, of the Securities 7 then Outstanding at a redemption price (expressed as a percentage of principal amount) of 101%, plus accrued and unpaid interest to the redemption date ("Special Optional Redemption"). In the event that there has been no Special Optional Redemption and the POI Acquisition has not been consummated by November 15, 2001, on November 30, 2001 the Issuer shall redeem all Securities then Outstanding at a redemption price (expressed as a percentage of principal amount) of 101%, plus accrued and unpaid interest to the redemption date ("Special Mandatory Redemption", and together with Special Option Redemption, "Special Redemption"). If a redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest, if any, will be paid to the Person in whose name the Security is registered at the close of business on such record date, and no additional interest will be payable to Holders whose Securities will be subject to redemption by the Issuer. 6. Repurchase Provisions (a) Upon a Change of Control with respect to Hanover, any Holder of Securities will have the right to cause the Issuer to repurchase all or any part of the Securities of such Holder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture. The Issuer will repurchase the Securities with the proceeds from an Equipment Purchase in accordance with Section: 20.l(c) of the Lease. (b) In the event of an Asset Disposition that requires the purchase of Securities pursuant to Section 9.6 of the Participation Agreement and Section 3.3 of the Indenture, the Issuer will be required to apply such Excess Proceeds to the repayment of the Securities in accordance with the procedures set forth in Section 3.3 of the Indenture. The Issuer will repurchase the Securities with the proceeds from an Equipment Purchase in accordance with Section 20.1(d) of the Lease. 7. Denominations: Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to finish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange (i) any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before the mailing of a notice of Securities to be redeemed and ending on the date of such mailing or (ii) any Securities for a period beginning 15 days before an interest payment date and ending on such interest payment date. 8 8. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purpose. 9. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Issuer at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Issuer and not to the Trustee for payment. 10. Defeasance Subject to certain conditions set forth in the Indenture, the Issuer at any time may terminate some or all of its obligations under the Securities and the Indenture if the Issuer deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 11. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment or in respect to a provision that cannot be amended without the written consent of each, Securityholder affected) or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuer and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants of the Issuer and the Hanover Guarantors, or surrender rights and powers conferred on the Issuer, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Securities. 12. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest when due on the Securities; (ii) default in payment of principal or premium, if any, on the Securities at Stated Maturity, upon required repurchase or upon optional redemption pursuant to paragraphs 5 and 6 of the Securities, upon declaration or otherwise; (iii) the failure by Hanover or any Hanover Guarantor to comply with its obligations under (x) Section 9.10 of the Participation Agreement or (y) prior to the execution and delivery of the Participation Agreement, Article IV of the Indenture, which default shall continue unremedied for a period of 30 days; (iv) failure by the Issuer to comply for 30 days after notice with any of its obligations 9 under the covenants described under Sections 3.2 through 3.27 inclusive of the Indenture (in each case, other than a failure to purchase Securities when required pursuant to Section 3.3 or 3.4, which failure shall constitute an Event of Default under clause (ii) above); (v) the failure by the Issuer to comply for 60 days after notice with its other agreements contained in the Indenture or under the Securities (other than those referred to in (i), (ii), (iii) or (iv) above) or any covenant, representation or warranty under any of the Operative Agreements; (vi) the occurrence and continuation of a Lease Event of Default; (vii) the Operative Agreements no longer create a first priority lien on all the Collateral for the benefit of the Trustee, in its capacity as Collateral Agent; (viii) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Hanover or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Hanover or any of its Restricted Subsidiaries), other than Indebtedness owed to Hanover or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness before the expiration of the grace period provided in such Indebtedness ("Payment Default") or (b) results in the acceleration of such Indebtedness prior to its maturity (the "cross acceleration provision") and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more; (ix) certain events of bankruptcy, insolvency or reorganization of the Issuer, Hanover or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for Hanover and its Restricted Subsidiaries), would constitute a Significant Subsidiary (the "bankruptcy provisions"); (x) failure by the Issuer, Hanover or any Restricted Subsidiary to pay final judgments aggregating in excess of $20.0 million or its foreign currency equivalent at the time (net of any amounts with respect to which a reputable and creditworthy insurance company has acknowledged liability in writing), which judgments are not paid, discharged or stayed for a period of 60 days (the "judgment default provision") or (xi) any respective Guarantee of any of the Hanover Guarantors ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a judicial proceeding or any Hanover Guarantor denies or disaffirms its obligations under the Indenture, the Participation Agreement or its Hanover Guarantee. However, a default under clauses (iv) and (v) will not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities notify the Issuer of the default and the Issuer does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default (other than an Event of Default described in clause (ix) above) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Events of Default described in clause (ix) above will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust 10 or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 13. Trustee Dealings with the Issuer Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuer or its Affiliates and may otherwise deal with the Issuer or its affiliates with the same rights it would have if it were not Trustee. 14. No Recourse Against Others An incorporates director, officer, employee, stockholder or controlling person, as such, of each of the Issuer, or any Hanover Guarantor shall not have any liability for any obligations of the Issuer under the Securities, the Indenture, the Participation Agreement or any Hanover Guarantees or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 15. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 16. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 17. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Issuer has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 18. Governing Law This Security shall be governed by, and construed in accordance with, the laws of the State of New York. 11 The Issuer will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Hanover Equipment Trust 2001A c/o Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Administration Telecopy No.: 302-651-8882 with a copy to: Hanover Compressor Company Hanover Compression Limited Partnership 12001 North Houston Rossyln Houston, Texas 77806 Attention: Chief Financial Officer 12 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to __________________________________________________________ (Print or type assignee's name, address and zip code) ______________________________________________ (Insert assignee's soc. sec. or tax ID. No.) and irrevocably appoint______________agent to transfer this Security on the books of the Issuer, The agent may substitute another to act for him. ________________________________________________________________________________ Date:________________________ Your signature: ________________ Signature Guarantee: ___________________________________________________________ (Signature must be guaranteed) ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Issuer or any Affiliate of the Issuer, the undersigned confirms that such Securities are being: CHECK ONE BOX BELOW: [1] acquired for the undersigned's own account, without transfer; or [2] transferred to the Issuer, or [3] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"); or [4] transferred pursuant to an effective registration statement under the Securities Act; or [5] transferred pursuant to and in compliance with Regulation S under the Securities Act; or 13 [6] transferred to an institutional "accredited investor" (as defined in Rule 501(a)(l), (2), (3) or (7) under the Securities Act), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as Section 2.7 of the Indenture); or [7] transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee or the Issuer may require, prior to registering any such transfer of the Securities, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Issuer may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ________________________________ Signature Signature Guarantee: ______________________________ ________________________________ (Signature must be guaranteed) Signature ________________________________________________________________________________ The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. TO BE COMPLETED BY PURCHASER IF (1) OR (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A Or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. __________________ Dated: 14 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security been made: AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN PRINCIPAL AMOUNT OF THIS SIGNATURE OF AUTHORISED DATE OF PRINCIPAL AMOUNT OF THIS PRINCIPAL AMOUNT OF THIS GLOBAL SECURITY FOLLOWING SUCH SIGNATORY OF TRUSTEE OR EXCHANGE GLOBAL SECURITY GLOBAL SECURITY DECREASE OR INCREASE SECURITIES CUSTODIAN - --------- ------------------------ ------------------------ ------------------------------- ------------------------

15 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Issuer pursuant to Section 3.3 or 3.4 of the Indenture, check either box: [ ] [ ] 3.3 3.4 If you want to elect to have only part of this Security purchased by the Issuer pursuant to Section 3.3 or 3.4 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: _____________Your Signature ______________________________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: ___________________________________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EX-4.12 7 h12863exv4w12.txt FORM OF 8.75% SENIOR SECURED NOTES EXHIBIT 4.12 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE I44A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(l), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST ISSUER, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. No. 001 . Principal Amount $249,970,000, as revised by the Schedule of Increases and Decreases in Global Security attached hereto CUSIP No. 41078TAC1 Rule 144A Global Note 8.75% Senior Secured Notes due 2011 Hanover Equipment Trust 2001B, a Delaware business trust, promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Forty-Nine Million Nine Hundred Seventy Thousand Dollars, as revised by the Schedule of Increases and Decreases in Global Security attached hereto, on September 1, 2011. Interest Payment Dates: March 1 and September 1 Record Dates: February 15 and August 15 Additional provisions of this Security are set forth on the other side of this Security. HANOVER EQUIPMENT TRUST 2001B By: --------------------------- Name: David A. Vanaskey Jr. Title: Vice President TRUSTEE'S CERTIFICATE OF AUTHENTICATION WILMINGTON TRUST FSB, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: --------------------- Authorized Signatory Date: August 30, 2001 8.75% Senior Secured Note due 2011 1. Interest Hanover Equipment Trust 2001B, a Delaware business trust (such business trust, and its successors and assigns under the Indenture hereinafter referred to; being herein called the "Issuer"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Issuer will pay interest semiannually in arrears on March 1 and September 1 of each year commencing March 1, 2002. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from September 1, 2001. The Issuer shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By at least 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Issuer shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Issuer will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the February 15 or August 15 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Issuer will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Issuer will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also be made, in the case of a Holder of a least $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Paving Agent and Registrar Initially, Wilmington Trust FSB (the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Issuer may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Issuer or any of its Restricted Subsidiaries may act as Paying Agent, Registrar or co-registrar. 5 4. Indenture The Issuer issued the Securities under an Indenture dated as of August 30, 2001 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), among the Issuer, the Hanover Guarantors and the Trustee and a Participation Agreement dated as of August 30, 2001 (the "Participation Agreement") among the Issuer, the Lessee, the Certificate Holders named therein, the Hanover Guarantors, the Trustee and Wilmington Trust Company. The terms of the Securities include those stated in the Indenture and the Participation Agreement and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are secured senior obligations of the Issuer limited to $250 million aggregate principal amount (subject to Section 2.2 of the Indenture). This Security is one of the Original Securities (also referred to as Initial Securities) referred to in the Indenture. The Initial Securities and the Exchange Securities will be treated as a single class of securities under the Indenture. The Indenture and the Participation Agreement impose certain limitations on, among other things: the Incurrence of Indebtedness by the Issuer or Hanover or its Restricted Subsidiaries, the purchase or redemption of Capital Stock of Hanover, the Incurrence of Liens by the Issuer or Hanover or its Restricted Subsidiaries, the sale or transfer of assets and Capital Stock of Restricted Subsidiaries of Hanover, the issuance or sale of Capital Stock of Restricted Subsidiaries of Hanover, the business activities and investments of the Issuer mergers and consolidation of Hanover, and transactions with Affiliates of Hanover and its Restricted Subsidiaries. In addition, the Participation Agreement limits the ability of Hanover and its Restricted Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. To guarantee the due and punctual payment of the principal, premium, if any, and interest on the Securities and all other amounts payable by the Issuer under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Hanover Guarantors will have unconditionally guaranteed, upon the release of escrowed funds pursuant to an Escrow Agreement, dated as of August 30, 2001 (the "Escrow Agreement"), among the Issuer, Hanover Equipment Trust 2001A and Wilmington Trust Company, as escrow agent, (and future Hanover Guarantors, together with the Hanover Guarantors, will unconditionally guarantee) jointly and severally, upon the occurrence of and during a Lease Event of Default, such obligations on a senior subordinated basis pursuant to the terms of a Guarantee, to be dated as of the date the escrowed funds are released pursuant to the Escrow Agreement, by the Hanover Guarantors. 5. Redemption Except as set forth below, the Securities will not be redeemable at the option of the Issuer prior to September 1, 2006. On and after such date, the Issuer may redeem all or, from time to time, a part of the Securities upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address and in accordance with the 6 provisions of Section 20.1 of the Lease, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on September 1 of the years set forth below:
Redemption Period Price - ------ ----- ~~2006 104.375% 2007 102.917% 2008 101.458% 2009 and thereafter 100.000%~~
Prior to September 1, 2004, to the extent that Hanover raises Net Cash Proceeds from one or more Public Equity Offerings and such Net Cash Proceeds are contributed toward an Equipment Purchase (as defined below), the Issuer may on any one or more occasions redeem up to 35% of the original principal amount of the Securities with the proceeds from an Equipment Purchase in accordance with the provisions of Section 20.1(b) of the Lease at a redemption price (expressed as a percentage of principal amount) of 108.75% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 65% of the original principal amount of the Securities must remain outstanding after each such redemption; provided further, that each such redemption occurs within 60 days of the date of closing of such Public Equity Offering. In each case, the Issuer will redeem the Securities with the proceeds from the Lessee's purchase of the Issuer's Equipment (the "Equipment Purchase"), in accordance with Sections 20.1 (a) or 20.1(b), as applicable, of the Lease. In the case of any partial redemption, selection of the Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not listed, then on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Securities of $ 1,000 in original principal amount or less will be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption relating to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security. On and after the redemption date, interest will cease to accrue on Securities or portions thereof called for redemption as long as the Issuer has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. If, in the sole judgment of the trustee of Hanover Equipment Trust 2001A, a Delaware business trust, prior to the POI Acquisition (defined below), the acquisition by the Lessee and its affiliates of Production Operators Corporation and certain other assets of Schlumberger Limited ("Schlumberger") and its affiliates, pursuant to that certain Purchase Agreement dated as of June 28, 2001 by and among Hanover Compression Limited Partnership, 7 Schlumberger and the other parties named therein (the "POI Acquisition"), will not be consummated by November 15, 2001, the Issuer may at its option at any time before November 1, 2001 redeem all, but not less than all, of the Securities then Outstanding at a redemption price (expressed as a percentage of principal amount) of 101%, plus accrued and unpaid interest to the redemption date ("Special Optional Redemption"). In the event that there has been no Special Optional Redemption and the POI Acquisition has not been consummated by November 15, 2001, on November 30, 2001 the Issuer shall redeem all Securities then Outstanding at a redemption price (expressed as a percentage of principal amount) of 101%, plus accrued and unpaid interest to the redemption date ("Special Mandatory Redemption", and together with Special Optional Redemption, "Special Redemption"). If a redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest, if any, will be paid to the Person in whose name the Security is registered at the close of business on such record date, and no additional interest will be payable to Holders whose Securities will be subject to redemption by the Issuer. 6. Repurchase Provisions (a) Upon a Change of Control with respect to Hanover, any Holder of Securities will have the right to cause the Issuer to repurchase all or any part of the Securities of such Holder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture. The Issuer will repurchase the Securities with the proceeds from an Equipment Purchase in accordance with Section 20.1(c) of the Lease. (b) In the event of an Asset Disposition that requires the purchase of Securities pursuant to Section 9.6 of the Participation Agreement and Section 3.3 of the Indenture, the Issuer will be required to apply such Excess Proceeds to the repayment of the Securities in accordance with the procedures set forth in Section 3.3 of the Indenture. The Issuer will repurchase the Securities with the proceeds from an Equipment Purchase in accordance with Section 20.1 (d) of the Lease. 7. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange (i) any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before the mailing of a notice of Securities to be redeemed and ending on the date of such 8 mailing or (ii) any Securities for a period beginning 15 days before an interest payment date and ending on such interest payment date. 8. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purposes. 9. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Issuer at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Issuer and not to the Trustee for payment. 10. Defeasance Subject to certain conditions set forth in the Indenture, the Issuer at any time may terminate some or all of its obligations under the Securities and the Indenture if the Issuer deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 11. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment or in respect to a provision that cannot be amended without the written consent of each Securityholder affected) or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuer and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants of the Issuer and the Hanover Guarantors, or surrender rights and powers conferred on the Issuer, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Securities. 12. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest when due on the Securities; (ii) default in payment of principal premium, if any, on the Securities at Stated Maturity, upon required repurchase or upon optional redemption pursuant to paragraphs 5 and 6 of the Securities, upon declaration or otherwise; (iii) the failure by Hanover or any Hanover Guarantor to comply with its obligations under (x) Section 9.10 of the 9 Participation Agreement or (y), prior to the execution and delivery of the Participation Agreement, Article IV of the Indenture, which default shall continue unremedied for a period of 30 days (iv) failure by the Issuer to comply for 30 days after notice with any of its obligations under the covenants described under Sections 3.2 through 327 inclusive of the Indenture (in each case, other than a failure to purchase Securities when required pursuant to Section 3.3 or 3.4, which failure shall constitute an Event of Default under clause (ii) above); (v) the failure by the Issuer to comply for 60 days after notice with its other agreements contained in the Indenture or under the Securities (other than those referred to in (i), (ii), (iii) or (iv) above) or any covenant, representation or warranty under any of the Operative Agreement; (vi) the occurrence and continuation of a Lease Event of Default; (vii) the Operative Agreements no longer create a first priority lien on all the Collateral for the benefit of the Trustee, in its capacity as Collateral Agent; (viii) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Hanover or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Hanover or any of its Restricted Subsidiaries), other than Indebtedness owed to Hanover or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness before the expiration of the grace period provided in such Indebtedness ("Payment Default") or (b) results in the acceleration of such Indebtedness prior to its maturity (the "cross acceleration provision") and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more; (ix) certain events of bankruptcy, insolvency or reorganization of the Issuer, Hanover or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for Hanover and its Restricted Subsidiaries), would constitute a Significant Subsidiary (the "bankruptcy provisions"); (x) failure by the Issuer, Hanover or any Restricted Subsidiary to pay final judgments aggregating in excess of $20.0 million or its foreign currency equivalent at the time (net of any amounts with respect to which a reputable and creditworthy insurance company has acknowledged liability in writing), which judgments are not paid, discharged or stayed for a period of 60 days (the "judgment default provision") or (xi) any respective Guarantee of any of the Hanover Guarantors ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a judicial proceeding or any Hanover Guarantor denies or disaffirms its obligations under the Indenture, the Participation Agreement or its Hanover Guarantee. However, a default under clauses (iv) and (v) will not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities notify the Issuer of the default and the Issuer does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default (other than an Event of Default described in clause (ix) above) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Events of Default described in clause (ix) above will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. 10 Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 13. Trustee Dealings with the Issuer Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuer or its Affiliates and may otherwise deal with the Issuer or its affiliates with the same rights it would have if it were not Trustee. 14. No Recourse Against Others An incorporator, director, officer, employee, stockholder or controlling person, as such, of each of the Issuer, or any Hanover Guarantor shall not have any liability for any obligations of the Issuer under the Securities, the Indenture, the Participation Agreement or any Hanover Guarantees or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 15. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 16. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 17. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Issuer has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 11 18. Governing Law This Security shall be governed by, and construed in accordance with, the laws of the State of New York. The Issuer will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Hanover Equipment Trust 2001B c/o Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Administration Telecopy No.: 302-651-8882 with a copy to: Hanover Compressor Company Hanover Compression Limited Partnership 12001 North Houston Rossyln Houston, Texas 77806 Attention: Chief Financial Officer 12 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to _______________________________________________________ (Print or type assignee's name, address and zip code) ______________________________________________ (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint_______________agent to transfer this Security on the books of the Issuer. The agent may substitute another to act for him. ________________________________________________________________________________ Date:_______________________ Your signature: ________________ Signature Guarantee:____________________________________________________________ (Signature must be guaranteed) ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Issuer or any Affiliate of the Issuer, the undersigned confirms that such Securities are being: CHECK ONE BOX BELOW: [1] acquired for the undersigned's own account, without transfer; or [2] transferred to the Issuer; or [3] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"); or [4] transferred pursuant to an effective registration statement under the Securities Act; or [5] transferred pursuant to and in compliance with Regulation S under the Securities Act; or 13 [6] transferred to an institutional "accredited investor" (as defined in Rule 501(a)(l), (2), (3) or (7) under the Securities Act), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as Section 2.7 of the Indenture); or [7] transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee or the Issuer may require, prior to registering any such transfer of the Securities, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Issuer may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ________________________________ Signature Signature Guarantee: _____________________________ _________________________________ (Signature must be guaranteed) Signature ________________________________________________________________________________ The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. TO BE COMPLETED BY PURCHASER IF (1) OR (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. __________________________ Dated: 14 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made: AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN PRINCIPAL AMOUNT OF THIS SIGNATURE OF AUTHORISED DATE OF PRINCIPAL AMOUNT OF THIS PRINCIPAL AMOUNT OF THIS GLOBAL SECURITY FOLLOWING SUCH SIGNATORY OF TRUSTEE OR EXCHANGE GLOBAL SECURITY GLOBAL SECURITY DECREASE OR INCREASE SECURITIES CUSTODIAN - --------- ------------------------ ------------------------ ------------------------------- ------------------------

15 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Issuer pursuant to Section 3.3 or 3.4 of the Indenture, check either box: [ ] [ ] 3.3 3.4 If you want to elect to have only part of this Security purchased by the Issuer pursuant to Section 3.3 or 3.4 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: _____________ Your Signature_____________________________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: ___________________________________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EX-4.14 8 h12863exv4w14.txt FORM OF ZERO COUPON SUBORDINATED NOTES EXHIBIT 4.14 FORM OF FACE OF SECURITY FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, THIS SECURITY BEARS ORIGINAL ISSUE DISCOUNT. INFORMATION INCLUDING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY WILL BE MADE AVAILABLE TO HOLDERS UPON REQUEST TO THE CHIEF FINANCIAL OFFICER OF THE COMPANY, AT (281) 447-8787. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFER IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. HANOVER COMPRESSOR COMPANY ZERO COUPON SUBORDINATED NOTE DUE MARCH 31, 2007 No. 2 Issue Date: May 14, 2003 Issue Price: $173,378,423 CUSIP: 410768 AD 7 Hanover Compressor Company, a Delaware corporation, promises to pay to Cede & Co. or registered assigns, on March 31, 2007 the Principal Amount of Two Hundred Sixty-Two Million, Six Hundred Twenty-One Thousand, Eight Hundred and Ten Dollars ($262,621,810). This Security shall not bear interest except as specified on the other side of this Security. Original Issue Discount will accrue as specified on the other side of this Security. Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, Hanover Compressor Company has caused this instrument to be duly executed. HANOVER COMPRESSOR COMPANY By:_________________________________ Name: John E. Jackson Title: Senior Vice President and Chief Financial Officer Dated: December 8, 2003 TRUSTEE'S CERTIFICATE OF AUTHENTICATION Wachovia Bank, National Association, as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By_____________________________ Authorized Signatory 2 REVERSE SIDE OF SECURITY HANOVER COMPRESSOR COMPANY ZERO COUPON SUBORDINATED NOTE DUE MARCH 31, 2007 1. INTEREST This Security shall not bear interest except as specified in this paragraph. If any Additional Interest accrues on this Security, then such accrued Additional Interest shall be payable upon the Stated Maturity or upon the earlier redemption pursuant to paragraph 5 hereof or acceleration thereof pursuant to Section 6.02 of the Indenture. If the Principal Amount hereof and accrued Additional Interest, if any, or any portion of such Principal Amount or accrued Additional Interest, if any, is not paid when due (whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the date set for payment of the Redemption Price pursuant to paragraph 5 hereof, or upon the Stated Maturity of this Security), then in each such case the overdue amount shall bear interest at the rate of 13.00% per annum, compounded semiannually (to the extent that the payment of such interest shall be legally enforceable), which interest shall accrue from the date such overdue amount was due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. The accrual of such interest on overdue amounts shall be in lieu of, and not in addition to, the continued accrual of Original Issue Discount and Additional Interest. The Original Issue Discount (the difference between the Issue Price and the Principal Amount of the Security) in the period during which a Security remains outstanding, shall accrue at 11.00% per annum, on a semiannual bond equivalent basis using a 360-day year composed of twelve 30-day months, commencing on the Issue Date of this Security. Event of Default Interest shall accrue at 2.0% per annum, on a semiannual bond equivalent basis using a 360-day year composed of twelve 30-day months, commencing on the date an Event of Default occurs and is continuing and automatically ceasing when all existing Events of Default have been cured or waived. Excess Leverage Interest shall accrue at 3.0% per annum, on a semiannual bond equivalent basis using a 360-day year composed of twelve 30-day months, commencing upon the date that the Consolidated Leverage Ratio has exceeded 5.18 to 1.0 throughout the two consecutive fiscal quarters most recently then ended and is continuing and automatically ceasing when the Consolidated Leverage Ratio no longer exceeds 5.18 to 1.0. In the event that the Company would be required to accrue Event of Default Interest and Excess Leverage Interest, the Company shall accrue only Excess Leverage Interest for as long as it is required. In no event shall the Company accrue both Event of Default Interest and Excess Leverage Interest. Original Issue Discount and, notwithstanding the foregoing, Additional Interest shall cease to accrue on the earlier of (a) the date on which the Principal Amount hereof or any portion of such Principal Amount becomes due and payable and (b) any Redemption Date or other date on which such Original Issue Discount shall cease to accrue in accordance with Section 2.08 of the Indenture. 3 2. METHOD OF PAYMENT Holders must surrender Securities to the Paying Agent to collect all payments in respect of the Securities. The Company will pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR Initially, Wachovia Bank, National Association (the "TRUSTEE"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice, other than notice to the Trustee. The company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE The Company issued the Securities under an Indenture (the "INDENTURE"), dated as of May 14, 2003, between the Company and the Trustee. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture for a statement of those terms. The Securities are general unsecured obligations of the Company limited to $262,621,810 aggregate Principal Amount (subject to Section 2.07 of the Indenture). 5. REDEMPTION AT THE OPTION OF THE COMPANY No sinking fund is provided for the Securities. The Securities are redeemable as a whole, or from time to time in part, at any time at the option of the Company at the Redemption Price described below, provided that the Securities are not redeemable prior to March 31, 2006. The Redemption Price of a Security shall equal (i) 102.50% multiplied by (ii) the Issue Price plus accrued Original Issue Discount and Additional Interest, if any, as of the Redemption Date. 6. [INTENTIONALLY OMITTED] 7. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY Notice of redemption at the option of the Company will be mailed at least 20 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at the Holder's registered address. If money sufficient to pay the Redemption Price of all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent prior to 11:00 a.m., New York City time, on the Redemption Date, on and after such date Original Issue Discount and Additional Interest, if any, cease to accrue on such Securities or portions thereof. 4 8. RANKING The Securities shall, to the extent set forth in Article 11 of the Indenture, be subordinate and junior and subject in right of payment to the prior payment in full in cash of all Senior Debt. 9. [INTENTIONALLY OMITTED] 10. [INTENTIONALLY OMITTED] 11. [INTENTIONALLY OMITTED] 12. DENOMINATIONS; TRANSFER; EXCHANGE The Securities are in registered form, without coupons, but with no limitation as to denominations. A Holder may transfer Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any transfer taxes or other assessments required by law. The Registrar need not transfer or exchange any Securities selected or called for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before the mailing of notice of Securities to be redeemed. 13. PERSONS DEEMED OWNERS The registered holder of this Security may be treated as the owner of this Security for all purposes. 14. UNCLAIMED MONEY OR SECURITIES The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such return, shall in the event that the Securities are no longer held in global form, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York and the Wall Street Journal (if such publication is then in circulation) or mail to each such Holder notice that such money or securities remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed money or securities then remaining will be returned to the Company. After return to the Company, Holders entitled to the money or securities must look only to the Company for payment as general creditors and all liability of the Trustee and the Paying Agent with respect to such money, and all liabilities as trustee thereof, shall thereupon cease. 5 15. AMENDMENT; WAIVER Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in aggregate Principal Amount of the Securities at the time outstanding and (ii) certain Defaults and Events of Defaults may be waived with the written consent of the Holders of a majority in aggregate Principal Amount of the Securities at the time outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, defect or inconsistency, or to provide for the assumption of the Company's obligations to the Holders of the Securities in case of a merger or consolidation or sale of all or substantially all of the Company's assets; to provide for uncertificated Securities in addition to or in place of certificated Securities or to make any change that does not adversely affect the rights of any Holder or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA. 16. DEFAULTS AND REMEDIES Under the Indenture, Events of Default include (i) except in the case of a redemption, the Company defaults in the payment of the Principal Amount, Issue Price, accrued Original Issue Discount or accrued Additional Interest on any Security when the same becomes due and payable at its Stated Maturity, upon declaration or otherwise; (ii) the Company defaults in the payment of the Redemption Price on any Security for more than five days after the same becomes due; (iii) the Company defaults in the performance of or compliance with any term contained in Sections 4.08 and 5.01 of the Indenture; (iv) the Company fails to comply with Section 4.09 and such failure continues for 30 days after the earlier to occur of (x) a senior financial officer of the Company obtaining knowledge of such failure to comply with Section 4.09 and (y) the Trustee notifying the Company, or the Holders of at least 25% in aggregate Principal Amount of the Securities at the time outstanding notifying the Company and the Trustee, of such failure to comply with Section 4.09; (v) the Company fails to comply with any of its agreements or covenants in the Securities or the Indenture (other than those referred to in clauses (i) - (iv) above), and such failure continues for 90 days after receipt by the Company of a Notice of Default; (vi) the Company is in default under one or more Senior Debt Agreements pursuant to which (a) Senior Debt in an aggregate principal amount of $100,000,000 or more is outstanding or (b) there are commitments thereunder to provide Senior Debt in an aggregate principal amount of $100,000,000 or more and as a consequence of such default the Indebtedness under such Senior Debt Agreements has become, or has been declared, due and payable before its regularly scheduled dates of payment; and (vii) certain events of bankruptcy or insolvency as set forth in the Indenture. If an Event of Default occurs and is continuing, the Trustee, or the Holders of at least 25% in aggregate Principal Amount of the Securities at the time outstanding, may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being declared due and payable immediately upon the occurrence of such Events of Default. Acceleration is subject to the subordination provisions of the Indenture. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives 6 reasonable indemnity or security. Subject to certain limitations, Holders of no less than a majority in aggregate Principal Amount of the Securities at the time outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default for 30 days or (except a Default in payment of amounts specified in clauses (i) and (ii) above) if it determines that withholding notice is in their interests. 17. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 18. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 19. AUTHENTICATION This Security shall not be valid until an authorized signatory of the Trustee manually signs the Trustee's Certificate of Authentication on the other side of this Security. 20. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TENANT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 21. OFFSET RIGHTS The aggregate Principal Amount of the Securities outstanding from time to time may be reduced as a result of Offset Prepayments, which Offset Prepayments terminate once the Schlumberger Holder owns less than all of the Securities. 22. GOVERNING LAW THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS SECURITY. 7 23. INDENTURE TO CONTROL In case of any conflict between the provisions of this Security and the Indenture, the provisions of the Indenture shall control. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Hanover Compressor Company 12001 North Houston Rosslyn Road Houston, Texas 77086 Attention: Corporate Secretary 8 TRANSFER NOTICE This Transfer Notice relates to __________ Principal Amount (as defined in the Indenture to which the referenced Securities are subject) of the Zero Coupon Subordinated Notes due March 31, 2007 of Hanover Compressor Company, a Delaware corporation, held by Schlumberger Technology Corporation (the "TRANSFEROR"). (I) or (we) assign and transfer this Security to ________________________________________________________________________________ (Print or type assignee's name, address and zip code) ________________________________________________________________________________ (Insert assignee's social security or tax I.D. no.) and irrevocably appoint _______________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Your Signature:_________________________________________________________________ (Sign exactly as your name appears on the other side of this Security) Date:__________________________________________________________________ Signature Guarantee:(1)________________________________________________ In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred: CHECK ONE BOX BELOW (1) [ ] to Hanover Compressor Company; or (2) [ ] pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (3) [ ] pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) [ ] pursuant to another available exemption from the registration requirements of the Securities Act of 1933; or - ---------------------------- (1) Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar which requirements include membership or participation in the Security Transfer Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 9 (5) [ ] pursuant to an effective registration statement under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (3) or (4) is checked, the Trustee may require, prior to registering any such transfer of the Securities such legal opinions, certifications and other information as it has reasonably requested (including, if the transferee is an institutional accredited investor as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, a letter signed by such transferee in the form of Exhibit B to the Indenture) to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. Unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933 (an "AFFILIATE"): (6) [ ] The transferee is an Affiliate of the Company. ____________________________________ Signature ____________________________________ Date ____________________________________ Signature Guarantee(2) - ---------------------------- (2) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 10 TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ _______________________________________________ [Signature of executive officer of purchaser] Name:__________________________________________ Title:_________________________________________ 11 EX-4.17 9 h12863exv4w17.txt FORM OF 8.625% SENIOR NOTES EXHIBIT 4.17 FORM OF GLOBAL SECURITY UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF DTC AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE. No. R-1 $200,000,000 CUSIP NO. 410768 AF 2 HANOVER COMPRESSOR COMPANY 8.625% SENIOR NOTE DUE 2010 Hanover Compressor Company, a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Million Dollars on December 15, 2010, and to pay interest thereon from December 15, 2003 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on June 15 and December 15 in each year, commencing June 15, 2004, at the rate of 8.625% per annum, until the principal hereof is paid or made available for payment, provided that any principal and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 8.625% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest on Securities in definitive form may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS Whereof, the Company has caused this instrument to be duly executed. HANOVER COMPRESSOR COMPANY By: _____________________________________ Name: John E. Jackson Title: Senior Vice President and Chief Financial Officer TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee By: ______________________________________ Authorized Signatory Dated: December 15, 2003 [REVERSE SIDE OF SECURITY] 8.625% SENIOR NOTE DUE 2010 1. Interest Hanover Compressor Company, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually in cash and in arrears to Holders of record at the close of business on the June 1 and December 1 immediately preceding the Interest Payment Date on June 15 and December 15 of each year, commencing on June 15, 2004. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from December 15, 2003. The Company shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By at least 11:00 a.m. (New York City time) on the date on which any principal of or interest on the Securities is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the June 1 or December 1 next preceding the Interest Payment Date even if the Securities are cancelled, repurchased or redeemed after the record date and on or before the Interest Payment Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal, premium and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay interest on any Security in definitive form by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Trustee, Paying Agent and Security Registrar Initially, Wachovia Bank, National Association, a national banking association (the "Trustee"), will act as Trustee, Paying Agent and Security Registrar. The Company may appoint and change any Paying Agent, Security Registrar or co-registrar without notice to any Holder. The Company may act as Paying Agent, Security Registrar or co-registrar. 4. Indenture The Company issued the Securities under the First Supplemental Indenture dated as of December 15, 2003 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Supplemental Indenture"), among the Company, the Subsidiary Guarantors and the Trustee to the Senior Indenture dated as of December 15, 2003 (as 3 it may be amended or supplemented from time to time in accordance with the terms thereof, the "Original Indenture" and, as amended and supplemented by the Supplemental Indenture, the "Indenture"). For the sake of clarity, each reference to the Indenture shall mean the Original Indenture as amended by the Supplemental Indenture, and future amendments and supplements, the provisions of which relate to the Securities and not future issuances of debt securities under the Original Indenture other than these Securities. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company initially issued in aggregate principal amount of $200,000,000. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the payment of dividends on, and the purchase or redemption of, Capital Stock of the Company and its Restricted Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the sale or transfer of assets and Capital Stock of Restricted Subsidiaries, Investments of the Company and its Restricted Subsidiaries and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and its Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. To guarantee (i) the full and punctual payment of the principal of, and premium, if any, and interest on the Securities when due, whether at Stated Maturity, by acceleration, by redemption, by required repurchase or otherwise, and all other monetary obligations of the Company under the Indenture and the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Indenture and the Securities, each Subsidiary Guarantor has unconditionally and irrevocably guaranteed such obligations pursuant to the terms of the Indenture. The Subsidiary Guarantees shall be unsecured senior subordinated obligations of each Subsidiary Guarantor, ranking pari passu with all other existing and future senior subordinated indebtedness of such Subsidiary Guarantor. 5. Optional Redemption The Securities will be redeemable, at the option of the Company, in whole or in part, at any time and from time to time prior to December 15, 2007, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed plus accrued but unpaid interest to the Redemption Date; and (ii)(a) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the Redemption Date to December 15, 2007 (except for currently accrued but unpaid interest) (assuming the Securities are redeemed, and based on the applicable Redemption Price, on that date) discounted to the Redemption Date, on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months), at the Treasury Rate, plus 50 basis points, plus (b) accrued but unpaid interest to the Redemption Date (subject to the right of Holders on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date). 4 The Securities will be redeemable, at the Company's option, in whole or in part, at any time and from time to time on and after December 15, 2007 and prior to Stated Maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following Redemption Prices (expressed as a percentage of principal amount), plus accrued interest, if any, to the Redemption Date (subject to the right of Holders on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date), if redeemed during the 12-month period commencing on December 15 of the years set forth below:
Year Redemption Price - --- ---------------- ~~2007................................. 104.313% 2008................................. 102.156% 2009 and thereafter.................. 100.000%~~
Prior to December 15, 2006, to the extent that the Company raises Net Cash Proceeds from one or more Qualified Equity Offerings, the Company may on any one or more occasions redeem up to 35% of the original principal amount of the Securities with the Net Cash Proceeds at a Redemption Price of 108.625% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date); provided that (i) at least 65% of the original principal amount of the Securities remains Outstanding after each such redemption; and (ii) the redemption occurs within 60 days after the closing of such Qualified Equity Offering. 6 Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at its registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the Redemption Price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the Redemption Date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Put Provisions Upon a Change of Control, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase as provided in, and subject to the terms of, the Indenture. 5 8. Subordination and Ranking of the Subsidiary Guarantees Each Subsidiary Guarantee is subordinated to the Guarantor Senior Indebtedness of the applicable Subsidiary Guarantor, as defined in the Indenture. To the extent provided in the Indenture, Guarantor Senior Indebtedness must be paid before payments may be made on the Securities pursuant to the Subsidiary Guarantees. Each Subsidiary Guarantor agrees, and each Holder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purpose. Each Subsidiary Guarantee will rank pari passu in right of payment with all other Guarantor Senior Subordinated Indebtedness of the applicable Subsidiary Guarantor. 9. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Security Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law. The Security Registrar need not register the transfer of or exchange of any Security selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities during a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 10. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or Stated Maturity, as the case may be. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the Outstanding Securities. Subject to certain exceptions set forth in the Indenture, 6 without the consent of any Holder, the Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities to, among other things, cure any ambiguity, omission, defect or inconsistency, or to comply with Article Four of the Supplemental Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add Subsidiary Guarantees or to secure the Securities or the Subsidiary Guarantees, or to add additional covenants or Events of Default or surrender rights and powers conferred on the Company, or to comply with any requirement of the Commission in connection with qualifying the Indenture under the Trust Indenture Act, or to make any other change that does not adversely affect the rights of any Holder. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Guarantor Senior Indebtedness then outstanding unless the requisite holders of such Guarantor Senior Indebtedness consent to such amendment. 14. Defaults and Remedies Under the Indenture, Events of Default include (i) a default in any payment of interest on any Security when due (whether or not such payment is prohibited by Article Eleven of the Supplemental Indenture), continued for 30 days, (ii) a default in the payment of principal of, or premium, if any, on, any Security when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, (iii) the failure by the Company to comply with its obligations under Section 501 of the Supplemental Indenture, (iv) the failure by the Company to comply for 30 days after notice with any of its obligations under Sections 703, 704, 705, 706, 707, 708, 709, 710, 711, 713 or 714 of the Supplemental Indenture (in each case, other than a failure to purchase Securities when required under Section 710 or 711 of the Supplemental Indenture), (v) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Securities or the Indenture, (vi) the failure by the Company or any Restricted Subsidiary to pay any Indebtedness for money borrowed within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default if the total amount of such Indebtedness unpaid or accelerated exceeds $20.0 million, (vii) certain events of bankruptcy, insolvency or reorganization of the Company, a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary, (viii) the rendering of any judgment or decree for the payment of money in an amount (net of any insurance or indemnity payments actually received in respect thereof prior to or within 90 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) in excess of $20.0 million against the Company or a Significant Subsidiary that is not discharged, bonded or insured by a third Person if (A) an enforcement proceeding thereon is commenced or (B) such judgment or decree remains outstanding for a period of 60 days following such judgment or decree and is not discharged, waived or stayed or (ix) the failure of any Subsidiary Guarantee of the Securities by a Subsidiary Guarantor to be in full force and effect (except as contemplated by the terms thereof or of the Indenture) or the denial or disaffirmation in writing by any such Subsidiary Guarantor of its obligations under the Indenture or its Subsidiary Guarantee. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Outstanding Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are 7 Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default or Event of Default (except a default or Event of Default in payment of principal, premium or interest) if it determines that withholding notice is in their interests. 15. Trustee Dealings with the Company Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company, the Subsidiary Guarantors or their affiliates and may otherwise deal with the Company, the Subsidiary Guarantors or their affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others A director, officer, employee, incorporator, limited partner, member or stockholder, as such, of the Company or the Subsidiary Guarantors shall not have any liability for any obligations of the Company or the Subsidiary Guarantors under the Securities, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 18. Abbreviations Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 19. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as 8 printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 20. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. The Company will furnish to any Holder upon written request and without charge to the Holder a copy of the Indenture. Requests may be made to: Hanover Compressor Company 12001 North Houston Rosslyn Houston, Texas 77086 Attention: Treasurer 9 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ____________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:____________________ Your Signature:___________________ Signature Guarantee:__________________________________________ (Signature must be guaranteed) ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in the Securities Transfer Agents Medallion Program ("STAMP") or such other signature guarantee medallion program as may be approved by the Security Registrar in addition to or substitution for, STAMP), pursuant to S.E.C. Rule 17Ad-15. 10 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Amount of decrease in Principal Amount of increase in Principal Date of Exchange Amount of this Global Security Amount of this Global Security - ---------------- ------------------------------ ------------------------------

Principal Amount of this Global Security following such decrease or Signature of authorized signatory of increase Trustee or Notes Custodian - ----------------------------------- ---------------------------------------
11 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 710 or 711 of the Supplemental Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 710 or 711 of the Supplemental Indenture, state the amount in principal amount (must be integral multiple of $1,000): $______________________ Date:______________ Your Signature ___________________________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions) with membership in the Securities Transfer Agents Medallion Program ("STAMP") or such other signature guarantee medallion program as may be approved by the Security Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule 17Ad-15. 12 EX-4.19 10 h12863exv4w19.txt FORM 4.75% CONVERTIBLE SENIOR NOTES EXHIBIT 4.19 FORM OF GLOBAL SECURITY UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF DTC AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE. No. R-1 $143,750,000 CUSIP NO. 410768 AE 5 HANOVER COMPRESSOR COMPANY 4.75% CONVERTIBLE SENIOR NOTE DUE 2014 Hanover Compressor Company, a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of One Hundred Forty-Three Million Seven Hundred Fifty Thousand Dollars on January 15, 2014, and to pay interest thereon from December 15, 2003 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on January 15 and July 15 in each year, commencing July 15, 2004, at the rate of 4.75% per annum, until the principal hereof is paid or made available for payment, provided that any principal, and any such installment of interest, which is overdue shall bear interest at the rate of 4.75% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest on Securities in definitive form may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS Whereof, the Company has caused this instrument to be duly executed. HANOVER COMPRESSOR COMPANY By:____________________________________ Name: John E. Jackson Title: Senior Vice President and Chief Financial Officer TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee By:____________________________________ Authorized Signatory Dated: December 15, 2003 2 [REVERSE SIDE OF SECURITY] 4.75% CONVERTIBLE SENIOR NOTE DUE 2014 1. Interest Hanover Compressor Company, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually in cash and in arrears to Holders of record at the close of business on the January 1 and July 1 immediately preceding the Interest Payment Date on January 15 and July 15 of each year, commencing on July 15, 2004. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from December 15, 2003. The Company shall pay interest on overdue principal (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By at least 11:00 a.m. (New York City time) on the date on which any principal of or interest on the Securities is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal and/or interest. The Company will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the January 1 or July 1 next preceding the Interest Payment Date even if the Securities are cancelled, repurchased or redeemed after the record date and on or before the Interest Payment Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay interest on any Security in definitive form by check payable in such money. It may mail an interest check to a Holder's registered address. Upon written application by the Holder of Securities aggregating more than $2.0 million in principal amount to the Paying Agent not later than the relevant record date, the Company will pay interest on such Securities by transfer of immediately available funds to a Dollar account maintained by such Holder with a bank in the United States. 3. Trustee, Paying Agent, Conversion Agent and Security Registrar Initially, Wachovia Bank, National Association, a national banking association (the "Trustee"), will act as Trustee, Paying Agent, Conversion Agent and Security Registrar. The Company may appoint and change any Paying Agent, Conversion Agent, Security Registrar or co-registrar without notice to any Holder. The Company may act as Paying Agent, Security Registrar or co-registrar. 3 4. Indenture The Company issued the Securities under the Second Supplemental Indenture dated as of December 15, 2003 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Supplemental Indenture"), between the Company and the Trustee to the Senior Indenture dated as of December 15, 2003 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Original Indenture" and, as amended and supplemented by the Supplemental Indenture, the "Indenture"). For the sake of clarity, each reference to the Indenture shall mean the Original Indenture as amended by the Supplemental Indenture, and future amendments and supplements, the provisions of which relate to the Securities and not future issuances of debt securities under the Original Indenture other than these Securities. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company and are limited to an aggregate principal amount of $143,750,000. 5. Optional Redemption At any time on or after January 15, 2011 and prior to January 15, 2013, the Company may, at its option, redeem the Securities, in whole at any time or in part from time to time, at a Redemption Price equal to 100% of the principal amount of the Securities to be redeemed, plus accrued and unpaid interest, if any, to but excluding the Redemption Date, if the Last Reported Sale Price of the Common Stock has exceeded 135% of the Conversion Price then in effect for at least 20 Trading Days within a period of 30 consecutive Trading Days ending on the Trading Day prior to the date on which the Company mails the notice of redemption pursuant to Section 1104 of the Original Indenture. Except as set forth in the previous paragraph, the Securities may not be redeemed at the option of the Company prior to January 15, 2013. On and after January 15, 2013, the Company may, at its option, redeem the Securities, in whole at any time or in part from time to time, on any date prior to the Stated Maturity, at a Redemption Price equal to 100% of the principal amount of the Securities to be redeemed, plus accrued and unpaid interest, if any, to but excluding Redemption Date. If a Redemption Date is an Interest Payment Date, the semiannual interest on the Securities payable on such Interest Payment Date will be payable to the Holder of record as of the relevant Regular Record Date, and the Redemption Price will not include such interest payment. 6. Notice of Redemption Notice of redemption will be mailed at least 20 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at his registered 4 address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the Redemption Price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the Redemption Date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Put Provisions Upon a Change in Control, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a Repurchase Price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Repurchase Date as provided in, and subject to the terms of, the Indenture. 8. Conversion A Holder may convert its Securities, at any time following the Issue Date and before the close of business on the Business Day immediately preceding the Stated Maturity, in whole or in part (in a denomination of $1,000 in principal amount or any integral multiple thereof), into shares of Common Stock at the Conversion Rate; provided that in the case of a Security all or part of which has been called for redemption as described in paragraph 5 above or delivered for repurchase pursuant to paragraph 7 above, such conversion right in respect to such Security or portion thereof so called or delivered shall expire at the close of business on the Business Day immediately preceding the Redemption Date or Repurchase Date, as the case may be (unless the Company shall default in the payment of the Redemption Price or Repurchase Price, as applicable, in which case such conversion right shall not terminate at such time). The Conversion Rate is initially equal to 66.6667 shares of Common Stock per $1,000 principal amount of Securities, subject to adjustment in certain events described in the Indenture. In addition the Company may increase the Conversion Rate for any period of at least 20 days upon at least 15 days' notice. The Company shall deliver cash or a check in lieu of any fractional share of Common Stock. If the Company is a party to a consolidation, merger or sale of assets, then at the effective time of such transaction the right to convert a Security into Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or another Person. 9. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Security Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law. The Security Registrar need not register the transfer of or exchange of any Security selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities during a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 5 10. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or Stated Maturity, as the case may be. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the Outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Company and the Trustee may amend the Indenture or the Securities to, among other things, cure any ambiguity, omission, defect or inconsistency, or to comply with Article Four of the Supplemental Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or Events of Default or surrender rights and powers conferred on the Company, or to comply with any requirement of the Commission in connection with qualifying the Indenture under the Trust Indenture Act, or to make any other change that does not adversely affect the rights of any Holder. 14. Defaults and Remedies Under the Indenture, Events of Default include (i) a default in any payment of interest on any Security when due, continued for 30 days, (ii) a default in the payment of principal of any Security when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, (iii) the failure by the Company to comply with its obligations under Section 501 of the Supplemental Indenture, (iv) the failure by the Company (A) to give away notice required by Section 902 of the Supplemental Indenture, (B) to make any required Change of Control Payment or (C) to comply for 60 days after notice with its other agreements contained in the Securities or the Indenture, (v) the failure by the Company or any Subsidiary to pay any indebtedness for money borrowed within any applicable grace period after final maturity or the acceleration of any such indebtedness by the holders thereof because of a default if the total amount of such indebtedness unpaid or accelerated exceeds $20.0 million, 6 (vi) certain events of bankruptcy, insolvency or reorganization of the Company, a Significant Subsidiary or any group of Subsidiaries that, taken together (as of the latest audited consolidated financial statements of the Company and its Subsidiaries), would constitute a Significant Subsidiary, or (vii) the rendering of any judgment or decree for the payment of money in an amount (net of any insurance or indemnity payments actually received in respect thereof prior to or within 90 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) in excess of $20.0 million against the Company or a Significant Subsidiary that is not discharged, bonded or insured by a third Person if (A) an enforcement proceeding thereon is commenced or (B) such judgment or decree remains outstanding for a period of 60 days following such judgment or decree and is not discharged, waived or stayed. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Outstanding Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default or Event of Default (except a default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interests. 15. Trustee Dealings with the Company Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its affiliates and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. 16. Calculations in Respect of the Securities The Company shall be responsible for making all calculations called for under the Securities. These calculations shall include, without limitation, determination of accrued interest payable, the Last Reported Sale Price of Common Stock and the Conversion Price or Rate. The Company shall make such calculations in good faith and, absent manifest error, such calculations shall be final and binding on the Holders. The Company shall provide a schedule of such calculations to the Trustee, Paying Agent and Conversion Agent, who may conclusively rely on such calculations without independent verification. The Trustee will forward such calculations to any Holder upon its request. 17. No Recourse Against Others A director, officer, employee, incorporator, limited partner, member or stockholder, as such, of the Company shall not have any liability for any obligations of the 7 Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 19. Abbreviations Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 20. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. The Company will furnish to any Holder upon written request and without charge to the Holder a copy of the Indenture. Requests may be made to: Hanover Compressor Company 12001 North Houston Rosslyn Houston, Texas 77086 Attention: Treasurer 8 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:____________________ Your Signature:___________________ Signature Guarantee:_____________________________________ (Signature must be guaranteed) ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in the Securities Transfer Agents Medallion Program ("STAMP") or such other signature guarantee medallion program as may be approved by the Security Registrar in addition to or substitution for, STAMP), pursuant to S.E.C. Rule 17Ad-15. 9 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Principal Amount of this Signature of authorized Date of Amount of decrease in Principal Amount of increase in Principal Global Security following signatory of Trustee or Exchange Amount of this Global Security Amount of this Global Security such decrease or increase Securities Custodian - -------- ------------------------------ ------------------------------ ------------------------- ------------------------
10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Article Nine of the Supplemental Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Article Nine of the Supplemental Indenture, state the amount in principal amount (must be integral multiple of $1,000): $------------------- Date: __________ Your Signature ______________________________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions) with membership in the Securities Transfer Agents Medallion Program ("STAMP") or such other signature guarantee medallion program as may be approved by the Security Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule 17Ad-15. 11 CONVERSION NOTICE To: Hanover Compressor Company The undersigned owner of this Security hereby: (i) irrevocably exercises the option to convert this Security, or the portion hereof below designated, for shares of Common Stock of Hanover Compressor Company in accordance with the terms of the Indenture referred to in this Security and (ii) directs that such shares of Common Stock deliverable upon the conversion, together with any check in payment for fractional shares and any Security(ies) representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares are to be delivered registered in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Dated _________________ _______________________________________ Signature Fill in for registration of shares if to be delivered, and of Securities if to be issued, otherwise than to and in the name of the registered holder. ________________________________ Social Security or other Taxpayer Identification Number __________________________________ (Name) __________________________________ (Street Address) __________________________________ (City, State and Zip Code) (Please print name and address) Principal amount to be converted: (if less than all) $___________________ Signature Guarantee* ___________________ *Participant in a recognized Signature Guarantee Medallion Program (or other signature acceptable to the Trustee). 12 EX-4.20 11 h12863exv4w20.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.20 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 14, 2003 is by and between Schlumberger Technology Corporation, a Texas corporation ("STC"), and Hanover Compressor Company, a Delaware corporation ("Hanover"). RECITALS WHEREAS, STC, Schlumberger Oilfield Holdings Limited, Schlumberger Surenco S.A., Hanover, Hanover Compression Limited Partnership and Hanover Cayman Limited are parties to that certain PIGAP Settlement Agreement dated the date hereof (the "Settlement Agreement"); WHEREAS, in connection with the Settlement Agreement, Hanover has agreed to issue to STC $262,621,810 aggregate principal amount at maturity of Hanover's Zero Coupon Subordinated Notes due 2007 (the "Notes"), which Notes are being issued pursuant to an Indenture dated as of May 14, 2003 between Hanover and Wachovia Bank, National Association, as trustee (the "Indenture"); WHEREAS, the parties are entering into this Agreement as a condition to closing the Settlement Agreement; AGREEMENTS NOW, THEREFORE, in consideration of the premises, and of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. In addition to capitalized terms defined elsewhere in this Agreement, the following capitalized terms shall have the following meaning when used in this Agreement. "Commission" means the Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended, together with all rules and regulations promulgated thereunder. "Filing Deadline" means the 45th day after the date hereof. "Holder" means STC and its Permitted Transferees. "Permitted Transferee" has the meaning assigned to such term in Section 5.4. "Person" means any person or entity, whether an individual, whether in his capacity as a trustee, executor, administrator or other legal representative, sole proprietorship, corporation, limited liability company, general partnership, limited partnership, trust, unincorporated organization, syndicate, business association, firm, joint venture, governmental agency or authority or any similar entity. "Registrable Securities" means all Notes upon original issuance thereof and at all time subsequent thereto until the earliest to occur of (i) a Shelf Registration Statement covering such Notes having been declared effective by the Commission and such Notes having been disposed of by the Holder in accordance with such effective Shelf Registration Statement, (ii) such Notes having been sold by the Holder in compliance with Rule 144, (iii) such Notes are no longer owned by the Holder, or (iv) such Notes ceasing to be outstanding. "Rule 144" means Rule 144 promulgated under the Securities Act, as such rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the Commission providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free from the registration and prospectus delivery requirements of the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, together with all rules and regulations promulgated thereunder. "Selling Expenses" means all fees and expenses of underwriters that are a party to an underwriting agreement or similar purchase agreement with the Holder, including discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industries professionals that are a party to an underwriting agreement or similar purchase agreement with the Holder relating to the distribution of the Registrable Securities. "Subordinated Debt Offering" means an underwritten public offering of subordinated debt securities of Hanover. "TIA" means the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission promulgated thereunder. "Trustee" has the meaning assigned to such term in the Indenture. 2. Shelf Registration. 2.1 Hanover shall prepare and file as promptly as practicable (but in any event on or before the Filing Deadline) with the Commission, and thereafter shall use all reasonable efforts to cause to be declared effective, a shelf registration statement on Form S-3 or an appropriate form under the Securities Act relating to the offer and sale of the Registrable Securities by the Holder from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, an "Initial Shelf Registration"). Hanover agrees not to file any other registration statement (other than a registration statement on Form S-4 or Form S-8) prior to filing the Initial Shelf Registration. Hanover further agrees not to request that any other registration statement (other than a registration statement on Form S-4 or Form S-8) be declared effective prior to the time that Hanover requests for the Initial Shelf Registration to be declared effective. 2.2 Hanover shall use all reasonable efforts to keep the Initial Shelf Registration continuously effective under the Securities Act in order to permit the prospectus forming part 2 thereof to be used by the Holder until the Notes are no longer Registrable Securities (the "Effectiveness Period"). 2.3 If the Initial Shelf Registration or any Subsequent Shelf Registration (as hereinafter defined) ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the Registrable Securities registered thereunder), Hanover shall use all reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness (i) amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or (ii) file an additional "shelf" Registration Statement covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use all reasonable efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such Registration Statement continuously effective during the Effectiveness Period. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration and the term "Shelf Registration Statement" means any registration statement filed in connection with a Shelf Registration. 2.4 Notwithstanding any other provisions hereof, Hanover will ensure that (i) the Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act, (ii) the Shelf Registration Statement and any amendment thereto (other than with respect to information included therein in reliance upon or in conformity with written information furnished to Hanover by or on behalf of the Holder specifically for use therein (the "Holder Information")) does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) any prospectus forming part of the Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to the Holder Information), as of any time when such prospectus is required to be delivered under the Securities Act does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration Statement, the following provisions shall apply: 3.1 Hanover shall prepare and file with the Commission on or prior to the Filing Deadline a Shelf Registration Statement as prescribed by Section 2 hereof, and use all reasonable efforts to cause such Shelf Registration Statement to become effective and remain effective as provided herein; provided that before filing a Shelf Registration Statement or prospectus, or any amendments or supplements thereto, Hanover will furnish copies of all such documents proposed to be filed to the Holder and the counsel for the Holder and will reflect the reasonable comments of such Persons in the Shelf Registration Statement. Hanover shall advise the Holder promptly after it shall file a Shelf Registration Statement or prospectus, or any amendments or supplements thereto, of such filing, and after it receives notice of the issuance of an order declaring the Shelf Registration Statement effective. 3 3.2 Hanover shall prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus(es) used in connection therewith as may be necessary to keep such Shelf Registration Statement effective during the Effectiveness Period and to comply with the provisions of the Securities Act with respect to the disposition of the Registrable Securities during such period in accordance with the intended methods of disposition by the Holder set forth in the Shelf Registration Statement. 3.3 Hanover shall furnish to the Holder such number of copies of the Shelf Registration Statement, each amendment and supplement thereto, the prospectus(es) included in the Shelf Registration Statement (including each preliminary prospectus) and such other documents as the Holder may reasonably request in order to facilitate the disposition of the Registrable Securities. 3.4 Hanover shall use all reasonable efforts to register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions as the Holder may reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable the Holder to consummate the disposition in such jurisdictions of the Registrable Securities; provided that Hanover will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3.4 or (ii) consent to general service of process in any such jurisdiction. 3.5 Subject to Section 5.1, Hanover shall notify the Holder, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in the Shelf Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and Hanover will promptly prepare a supplement or amendment to such prospectus or a post-effective amendment to the Shelf Registration Statement so that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading. 3.6 Hanover shall enter into such customary agreements (including underwriting agreements in customary form) and take all such other customary actions, including arranging for opinions of counsel and accountant's "comfort letters," as the Holder or the underwriters, if any, reasonably requests in order to expedite or facilitate the disposition of the Registrable Securities; provided, however, Hanover shall not be required to enter into any agreement or arrangement that prohibits Hanover from offering or selling any securities issuable by Hanover for any period of time. 3.7 Hanover shall make reasonably available for inspection by the Holder, any underwriter participating in any disposition pursuant to the Shelf Registration Statement, and any attorney, accountant or other agent retained by the Holder or any such underwriter, all financial and other records, pertinent corporate documents and properties of Hanover, and cause Hanover's officers, directors, employees and independent accountants to supply all information reasonably requested by the Holder, any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement. 4 3.8 Hanover shall advise the Holder promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of the Shelf Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use all reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued as proscribed in Section 2.3. 3.9 Hanover shall cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company. Hanover shall also enable such Registrable Securities to be in such denominations and registered in such names as the Holder may reasonably request. 3.10 Hanover shall, prior to the effective date of the Initial Shelf Registration relating to the Registrable Securities, (i) provide the Trustee with certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and (ii) take such action to procure a CUSIP number for the Registrable Securities. 3.11 Hanover shall cause the Indenture to be qualified under the TIA not later than the effective date of the Initial Shelf Registration, and in connection therewith, cooperate with the Trustee and the Holder to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA. Hanover shall execute, and use all reasonable efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable the Indenture to be so qualified in a timely manner. 3.12 Hanover shall, upon prior request from the Holder, participate and make senior management reasonably available to participate, in any due diligence and "roadshow" marketing efforts reasonably requested by the Holder or any underwriter retained by the Holder. 3.13 Hanover shall use all reasonable efforts (and in no event less than Hanover uses with respect to its own securities) to cause the Notes to be rated by both Standard & Poor's Ratings Group, a division of the McGraw Hill Companies, Inc. ("S&P"), and Moody's Investor Service, Inc. ("Moody's") and Hanover shall use all reasonable efforts to cause the Notes to remain rated by both S&P and Moody's during the Effectiveness Period. 4. Registration Expenses. All expenses incident to Hanover's performance of or compliance with this Agreement, including, but not limited to, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for Hanover and all independent certified public accountants and other Persons retained by Hanover, will be borne by Hanover, provided that in no event shall Hanover be required to pay any Selling Expenses or transfer taxes. In addition, Hanover will pay its internal expenses (including, but not limited to, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review and the expense of any liability insurance obtained by Hanover. 5 5. Blackout Rights. 5.1 The Holder shall not offer, sell or otherwise dispose of the Registrable Securities unless it has provided to Hanover a written notice of its intent to offer and sell the Registrable Securities at least two (2) business days prior to the offer or sale of the Registrable Securities (the "Offer Notice"). Hanover shall have two (2) business days following delivery of such Offer Notice by the Holder to provide written notice (a "Blackout Notice") to the Holder objecting to such offering or sale if the Board of Directors of Hanover (or any authorized committee thereof) determines in good faith that it is in the best interests of Hanover not to disclose the existence of facts surrounding any proposed or pending material corporate transaction or other material development involving Hanover at the time of the proposed offering (the "Blackout Right"). If Hanover exercises its Blackout Right, the Holder shall not offer or sell the Registrable Securities for a period of up to forty-five (45) days (as specified in the Blackout Notice) from the date of the Blackout Notice. Furthermore, Hanover shall be entitled to exercise the Blackout Right no more than two (2) times and with respect to no more than ninety (90) days during any 365-day period (including any deemed exercise of the Blackout Right pursuant to Section 5.3). If the Holder provides written notice of its intent to offer and sell the Registrable Securities as provided above and if Hanover does not timely provide a Blackout Notice in response thereto, then the Holder may offer and sell the Registrable Securities during the thirty (30) days following the expiration of the applicable two (2) business day period in which the Holder could have given a Blackout Notice. If the Holder decides to conduct such offering and sale of the Registrable Securities pursuant to an underwritten public offering, the Holder agrees to make the appropriate officers reasonably available during the two (2) business days following the delivery of the Offer Notice to confer with Hanover to negotiate in good faith to agree on the selection of the underwriters in the underwriting group and the legal counsel to the underwriting group in connection with such offering and sale of the Registrable Securities; provided, however, that the Holder ultimately has the sole authority to select such underwriters and legal counsel. If the Registrable Securities are not sold during such thirty (30) day period, the Holder shall not thereafter offer or sell the Registrable Securities unless a subsequent notice is given to Hanover as provided above. Notwithstanding anything in this Section 5.1 to the contrary, one (1) time during calendar year 2004 and one (1) time during calendar year 2005, Hanover may, at any time other than during the two (2) business day period during which Hanover may exercise a Blackout Notice as set forth above or during the thirty (30) day period following the expiration of such two (2) day period, give the Holder written notice that Hanover desires to have 30 calendar days beginning the day after the date of delivery of such notice in which to sell debt securities and the Holder agrees not to deliver an Offer Notice or to otherwise offer, sell or otherwise dispose of Registrable Securities during such 30 calendar day period. 5.2 No later than the date that is two (2) business days after the date that the Initial Shelf Registration is declared effective by the Commission, the Holder shall give Hanover a written notice stating that either (i) the Holder shall have a 30-day period beginning on the first business day after such notice is delivered in which to sell Registrable Securities and Hanover shall not offer, sell or otherwise dispose of any debt securities issuable by Hanover or its subsidiaries (other than the offer or sale to a bank or bank syndicate in connection with any revolving or term bank credit facility) during such 30-day period or (ii) Hanover shall have a 30-day period beginning on the first business day after such notice is delivered in which to commence an offering of debt securities issuable by Hanover or its subsidiaries and the Holder 6 shall not sell any Registrable Securities during such 30 day period. In the event that the written notice described in clause (i) of the first sentence of this Section 5.2 is given, Hanover shall have a 30-day period beginning on the first business day after the earlier to occur of (a) the end of the 30-day period described in such clause (i), or (b) the earlier to occur of (A) the date that the Holder closes the sale of any Registrable Securities (excluding any over-allotment option granted in connection therewith) or (B) four (4) trading days after the date that the Holder prices the sale of any Registrable Securities (excluding any over-allotment option granted in connection therewith), in which to commence an offering of debt securities issuable by Hanover or its subsidiaries and the Holder shall not sell any Registrable Securities during such 30-day period (except to the extent such offering of debt securities by Hanover closes during such 30-day period (excluding any over-allotment option granted in connection therewith)). In the event that the written notice described in clause (ii) of the first sentence of this Section 5.2 is given, the Holder shall have a 30-day period beginning on the first business day after the earlier to occur of (a) the end of the 30-day period described in such clause (ii), or (b) the earlier to occur of (A) the date that Hanover closes an offering of debt securities issued by Hanover or its subsidiaries (excluding any over-allotment option granted in connection therewith) or (B) four (4) trading days after the date that Hanover prices an offering of debt securities issued by Hanover or its subsidiaries (excluding any over-allotment option granted in connection therewith), in which to sell the Registrable Securities and Hanover shall not offer, sell or otherwise dispose of any debt securities issuable by the Company or its subsidiaries (other than the offer or sale to a bank or bank syndicate in connection with any revolving or term bank credit facility) during such 30-day period (except to the extent such offering of Registrable Securities closes during such 30-day period (excluding any over-allotment option granted in connection therewith)). In no case may Hanover exercise its Blackout Right in a manner that prohibits the Holder from selling Registrable Securities during the periods described in this Section 5.2. 5.3 During the Effectiveness Period, any failure of a Shelf Registration Statement to be effective when the Holder notifies Hanover of its intent to sell Registrable Securities shall count as the exercise of a Blackout Right by Hanover for as long as such Shelf Registration Statement is not effective following such notice. 5.4 Notwithstanding anything in this Section 5 to the contrary, the Holder shall be permitted to transfer the Registrable Securities (provided that such transfer is exempt from registration under the Securities Act), together with the rights granted to the Holder under this Agreement, only to a Permitted Transferee who delivers to Hanover, in connection with such transfer, a written instrument by which such transferee agrees to be bound by the applicable terms of this Agreement. A "Permitted Transferee" shall mean any direct or indirect subsidiary of Schlumberger Limited or any entity that merges or consolidates with or owns or acquires all of the equity securities or all or substantially all of the assets of the Holder or any direct or indirect subsidiary of such entity. 6. Indemnification. 6.1 Hanover agrees to indemnify, to the extent permitted by law, the Holder, each Person who controls the Holder (within the meaning of the Securities Act), any agent, underwriter, legal counsel or other representative retained by the Holder, and with respect to each such Person, its officers, employees, partners and directors against all losses, claims, 7 damages, liabilities and expenses (including, but not limited to, reasonable attorneys' fees and expenses) caused by (i) any untrue or alleged untrue statement of material fact contained in any Shelf Registration Statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto or (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished, or caused to be furnished, in writing to Hanover by the Holder or its Affiliates (or with respect to indemnification claims by an underwriter, except insofar as the same are caused by or contained in any information furnished, or caused to be furnished, in writing to Hanover by that underwriter or its legal counsel or representatives), expressly for use therein or by the Holder's failure to deliver a copy of the prospectus or any amendments or supplements thereto after Hanover has furnished the Holder with a sufficient number of copies of the same. The payments required by this Section 6.1 will be made periodically during the course of the investigation or defense, as and when bills are received or expenses incurred. 6.2 In connection with any Shelf Registration Statement in which the Holder is participating, the Holder will furnish to Hanover such information as Hanover reasonably requests for use in connection with any such Shelf Registration Statement or prospectus and, to the extent permitted by law, will indemnify Hanover, its directors, employees and officers and each Person who controls Hanover (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses (including, but not limited to, reasonable attorneys' fees and expenses) resulting from any untrue or alleged untrue statement of material fact contained in the Shelf Registration Statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in or omitted from any information so furnished in writing by the Holder for the acknowledged purpose of inclusion in such registration statement, prospectus or preliminary prospectus; provided that the liability of the Holder will be limited in all events to the net amount received by the Holder from the sale of Registrable Securities pursuant to the Shelf Registration Statement. 6.3 Any Person entitled to indemnification hereunder will (a) give prompt written notice to the indemnifying Person of any claim with respect to which it seeks indemnification and (b) permit such indemnifying Person to assume the defense of such claim with counsel reasonably satisfactory to the indemnified Person. If such defense is assumed, the indemnifying Person will not be subject to any liability for any settlement made by the indemnified Person without its consent. An indemnifying Person who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying Person with respect to such claim. No indemnifying Person, in the defense of any claim, shall, except with the prior written consent of the indemnified Person, consent to entry of any judgment or enter into any settlement (i) that does not include as an unconditional term thereof the giving by the claimant to such indemnified Person a release from all liability in respect to such claim in form and substance reasonable satisfactory to such indemnified Person, or (ii) that imposes any equitable remedies, conduct restrictions or affirmative obligations whatsoever on such indemnified Person other than financial obligations for which such indemnified Person will be indemnified hereunder. 8 6.4 The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person or any officer, director or controlling Person of such indemnified Person and will survive the transfer of the Registrable Securities. Hanover and the Holder also agree to make such provisions as are reasonably requested by any indemnified Person for contribution to such Person in the event the indemnifying Person's indemnification is unavailable for any reason. 7. Compliance with Rule 144. So long as Hanover files reports under Section 13 or 15(d) of the Exchange Act and any Registrable Securities remain outstanding, then at the request of the Holder, Hanover will (a) forthwith furnish to the Holder a written statement of compliance with the filing requirements of the Commission as set forth in Rule 144, and (b) make available to the public and the Holder such information as will enable the Holder to make sales pursuant to Rule 144. 8. Miscellaneous. 8.1 No Inconsistent Agreements. Hanover will not hereafter enter into any agreement with respect to its securities which is inconsistent with or which otherwise materially limits, restricts or interferes with the rights granted to the Holder in this Agreement. 8.2 Amendments and Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of Hanover and the Holder. Any waiver, permit, consent or approval of any kind or character on the part of any of the parties hereto of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing. 8.3 Successors and Assigns. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto. Except as set forth in Section 5.4, this Agreement may not be assigned (and any purported assignment shall be null and void) without the prior written consent of the non-assigning Person. 8.4 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 8.5 Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as the Holder designates by written notice to Hanover, and shall be deemed to have been given upon delivery, if delivered personally, two (2) business days after mailing, if mailed, or one (1) business day after delivery to the courier, if delivered by overnight courier service: If to Hanover, to: 9 Hanover Compressor Company 12001 North Houston Rosslyn Road Houston, Texas 77086 Attn: General Counsel Fax: (281) 405-6203 If to the Holder, to: Schlumberger Technology Corporation 300 Schlumberger Drive MD:23 Sugar Land, Texas 77478 Attn: General Counsel Fax: (281) 285-6952 with a copy to (which shall not constitute notice): Gray Cary Ware & Freidenrich 1221 South MoPac, Suite 400 Austin, Texas 78746-6875 Attn: Brian P. Fenske, Esq. Fax: (512) 457-7001 8.6 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. 8.7 Governing Law. This Agreement and the transactions contemplated hereby shall be construed in accordance with, and governed by, the laws of the State of New York. 8.8 Consent to Jurisdiction. Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of any federal court located in the Borough of Manhattan in the City of New York, New York or any New York state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it will not bring any action relating to this Agreement in any court other than a federal court sitting in the Borough of Manhattan in the City of New York, New York or a New York state court. 8.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RESPECTIVE RIGHT TO A JURY TRIAL OF ANY PERMITTED CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY DEALINGS BETWEEN ANY OF THE PARTIES HERETO RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED 10 HEREBY, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR OTHER MODIFICATIONS TO THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR TO ANY OTHER DOCUMENT OR AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. 8.10 Service of Process. Each of the parties hereto irrevocably consents to the service of any process, pleading, notices or other papers by the mailing of copies thereof by registered, certified or first class mail, postage prepaid, to such party at such party's address set forth herein, or by any other method provided or permitted under New York law; provided that if either party hereto effects such service of process by any method other than transmittal thereof via overnight courier, charges prepaid, such party shall simultaneously transmit a copy thereof via overnight courier, charges prepaid. 8.11 Reproduction of Documents. This Agreement and all documents relating hereto, including, but not limited to, (a) consents, waivers, amendments and modifications which may hereafter be executed and (b) certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, optical disk, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 8.12 Remedies. Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party shall be entitled to immediate injunctive relief or specific performance without bond or the necessity of showing actual monetary damages in order to enforce or prevent any violations of the provisions of this Agreement. 8.13 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 8.14 Final Agreement. This Agreement constitutes the complete and final agreement of the parties concerning the matters referred to herein, and supersedes all prior agreements and understandings. 11 8.15 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be used against any Person. * * * * * [Signature Page Follows] 12 The parties hereto have executed this Agreement as of the date first set forth above. HANOVER COMPRESSOR COMPANY By: /s/ John E. Jackson ---------------------------------------- Name: John E. Jackson -------------------------------------- Title: Senior Vice President and Chief Financial Officer ------------------------------------- SCHLUMBERGER TECHNOLOGY CORPORATION By: /s/ Dean Ferris ---------------------------------------- Name: Dean Ferris -------------------------------------- Title: Assistant Secretary ------------------------------------- SIGNATURE PAGE REGISTRATION RIGHTS AGREEMENT EX-10.2 12 h12863exv10w2.txt PIGAP SETTLEMENT AGREEMENT EXHIBIT 10.2 PIGAP SETTLEMENT AGREEMENT This PIGAP Settlement Agreement (this "Agreement") is made as of May 14, 2003 by and among Schlumberger Technology Corporation ("STC"), Schlumberger Oilfield Holdings Limited ("SOHL"), Schlumberger Surenco S.A. ("Surenco"), Hanover Compressor Company ("Hanover") and Hanover Compression Limited Partnership ("Purchaser"). WHEREAS, the parties hereto are parties to that certain Purchase Agreement dated as of June 28, 2001, as amended by that certain Amendment No. 1 to Purchase Agreement dated as of August 30, 2001 (together, the "Purchase Agreement"). WHEREAS, Camco International Inc. ("Camco") has been merged with and into STC. WHEREAS, any capitalized terms used and not defined herein (including Annex A hereto) shall have the meanings ascribed to them in the Purchase Agreement. WHEREAS, the WilPro Interest was transferred by Surenco to Hanover Cayman, Limited ("Hanover Cayman") at the Closing under the Purchase Agreement. WHEREAS, pursuant to Section 1.7 of the Purchase Agreement, Purchaser had the option in certain circumstances to put the WilPro Interest back to Surenco. Purchaser and Surenco desire that Purchaser retain the WilPro Interest and that the PIGAP Put be terminated and that certain other matters and issues that have arisen or may arise among the parties be settled. WHEREAS, Hanover and certain of its officers and directors are named defendants in private litigation arising out of or based, inter alia, on the 2002 restatements of Hanover's financial statements and the events giving rise thereto. Now, therefore, in consideration of the foregoing and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I TERMINATION AND EXCHANGE 1.1 PIGAP Put. The PIGAP Put is hereby terminated and neither Surenco nor any of its Affiliates shall have any obligation to purchase or to assume the WilPro Interest and from this day forward Surenco and its Affiliates shall have no obligations or liabilities to Purchaser and its Affiliates with respect to the WilPro Interest, including, without limitation, with respect to the PIGAP Put and any provision of the Purchase Agreement relating thereto. 1.2 Hanover Note. The Hanover Note is hereby amended, modified and re-issued as the security (the "Security") representing the Zero Coupon Subordinated Notes due March 31, 2007 in the form of Exhibit A issued pursuant to the Indenture dated the date hereof between Hanover and Wachovia Bank, as Trustee, attached hereto as Exhibit B (the "Indenture"). In connection with the execution and delivery of this Agreement, Hanover shall execute and deliver to STC (i) the Indenture and (ii) the Security. In addition, each of STC and Hanover shall execute and deliver the offset rights agreement attached hereto as Exhibit C. 1.3 Consent and Agreement. Each of Surenco, Hanover Cayman, Williams International PIGAP Limited and WilPro Energy Services (PIGAP) Limited shall execute and deliver the Consent and Agreement attached hereto as Exhibit D. 1.4 Registration Rights Agreement. Each of STC and Hanover shall execute and deliver the Registration Rights Agreement dated the date hereof attached hereto as Exhibit E with respect to the Zero Coupon Subordinated Notes due 2007 issuable by Hanover pursuant to the Indenture (the "Registration Rights Agreement"). 1.5 Financing Obligation. Any and all obligations of Hanover to pay Surenco and its Affiliates up to Fifty Eight Million Dollars ($58,000,000) pursuant to Section 1.2(a)(ii) of the Purchase Agreement are hereby terminated and replaced with the non-recourse promissory note (the "Non-Recourse Note") attached hereto as Exhibit F. Each of Hanover Cayman and Surenco shall execute and deliver the Assignment and Security Agreement dated the date hereof attached hereto as Exhibit G. 1.6 Credit Support for WilPro. The obligation of Surenco and its Affiliates to provide any additional funding, credit support or involvement in connection with the refinancing of the WilPro Interest by Overseas Private Investment Corporation and ABN AMRO N.V., as SACE Facility Agent and Administrative Agent, is hereby terminated as set forth in Exhibit H hereto. 1.7 Indemnification Agreement. Hanover shall execute and deliver the Indemnification Agreement dated the date hereof attached hereto as Exhibit I. 1.8 Changes to Credit Agreement. The parties hereto agree that if, prior to the Shelf Registration Statement (as such term is defined in the Registration Rights Agreement) being declared effective by the Securities and Exchange Commission (the "SEC"), (a) the definition of "Consolidated EBITDA" contained in the Credit Agreement (as defined in the Indenture), as in effect on the date hereof, is amended to add back expenses and losses resulting from the settlement of litigation or the settlement with a Governmental Authority (as defined in the Indenture) due to inquiries or investigations by one or more Governmental Authorities (collectively, the "Settlements"), the definition of "Consolidated EBITDA" contained in the Indenture shall be amended in the same manner and (b) the definition of "Consolidated Indebtedness" contained in the Credit Agreement, as in effect on the date hereof, is amended to exclude from Consolidated Indebtedness any Indebtedness incurred as a result of the Settlements, the definition of "Consolidated Indebtedness" contained in the Indenture shall be amended in the same manner; provided that (i) any such amendment to the Credit Agreement shall not effect the calculation of the Consolidated Leverage Ratio under the Credit Agreement (other than such effects caused by the changes to the definitions resulting from the amendments described above), (ii) Hanover's efforts to effect the above amendments to the Credit Agreement shall not effect or delay its efforts or obligations to file the Shelf Registration Statement with the SEC and to cause the Shelf Registration Statement to be declared effective by the SEC as provided in the Registration Rights Agreement and (iii) all costs and expenses associated with 2 preparing any amendment or supplement to the Shelf Registration Statement and filing the same with the SEC to effect the above amendments shall be borne by Hanover. 1.9 Accredited Investor. (a) STC is acquiring the Security under this Agreement for its own account and not with a view to any distribution of the Security in violation of the federal securities laws. (b) STC understands that the Security has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any federal or state law by reason of specific exemptions under the provisions thereof, the availability of which depend in part upon the accuracy of its representations made in this Section 1.9. (c) STC is an "accredited investor" as defined in Rule 501(a) of Regulation D under the Securities Act. (d) STC understands that the Security is a "restricted security" under applicable federal securities laws and that the Securities Act and the rules of the SEC thereunder provide in substance that it may dispose of the Security only pursuant to an effective registration statement under the Securities Act or an exemption therefrom, and it understands that Hanover has no obligation to register the Security except as contemplated by the Registration Rights Agreement. (e) Surenco is acquiring the Non-Recourse Note under this Agreement for its own account and not with a view to any distribution of the Non-Recourse in violation of the federal securities laws. (f) Surenco understands that the Non-Recourse Note has not been registered under the Securities Act or any federal or state law by reason of specific exemptions under the provisions thereof, the availability of which depend in part upon the accuracy of its representations made in this Section 1.9. (g) Surenco is an "accredited investor" as defined in Rule 501(a) of Regulation D under the Securities Act. (h) Surenco understands that the Non-Recourse Note is a "restricted security" under applicable federal securities laws and that the Securities Act and the rules of the SEC thereunder provide in substance that it may dispose of the Non-Recourse Note only pursuant to an effective registration statement under the Securities Act or an exemption therefrom, and it understands that Hanover has no obligation to register the Non-Recourse Note. ARTICLE II RELEASE 2.1 Release by Schlumberger Parties. As partial consideration for the agreement by Hanover and Purchaser (collectively, the "Hanover Parties") to enter into this Agreement, each 3 of STC, SOHL and Surenco (collectively, the "Schlumberger Parties"), for itself and for its past, present and future divisions, subsidiaries and Affiliates (which includes Schlumberger Limited and its direct and indirect subsidiaries) and each of their respective predecessors, successors, assigns and legal representatives, officers, directors, agents and employees, and each of their respective heirs, legal representatives, insurers and assigns (the "Schlumberger Releasing Parties"), does hereby fully, finally and forever remise, release, acquit and discharge each of the Hanover Parties, and each of their respective past, present and future divisions, subsidiaries (including, without limitation, Hanover Cayman) and Affiliates, and each of their respective predecessors, successors, assigns and past and present legal representatives, officers, directors, agents (other than PricewaterhouseCoopers, LLP) and employees, and each of their respective heirs, legal representatives, insurers and assigns and GKH (the "Hanover Released Parties") of and from all Released Claims, and hereby quit-claims, waives any right to, and covenants not to sue any Hanover Released Party with respect to any Released Claim, that any Schlumberger Releasing Party has, had or may, can or shall have, hold, own or claim to have, own or hold, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the day of the date of this Agreement. Notwithstanding anything herein to the contrary, the Schlumberger Releasing Parties are not releasing any Claims against PricewaterhouseCoopers, LLP, including without limitation Claims asserted in the January 24, 2003 complaint captioned Plumbers & Steamfitters, Local 137 Pension Fund and John Petti v. PricewaterhouseCoopers, LLP, Case No. H-03-0300. 2.2 Release by Hanover Parties. As partial consideration for the agreement by the Schlumberger Parties to enter into this Agreement, each of the Hanover Parties, for itself and for its past, present and future divisions, subsidiaries (including, without limitation, Hanover Cayman) and Affiliates and each of their respective predecessors, successors, assigns and past and present legal representatives, officers, directors, agents and employees, and each of their respective heirs, legal representatives, insurers and assigns (the "Hanover Releasing Parties"), does hereby fully, finally and forever remise, release, acquit and discharge each of the Schlumberger Parties, and each of their respective past, present and future divisions, subsidiaries and Affiliates (including Schlumberger Limited and its direct and indirect subsidiaries), and each of their respective predecessors, successors, assigns and legal representatives, officers, directors, agents and employees, and each of their respective heirs, legal representatives, insurers and assigns (the "Schlumberger Released Parties") of and from all Released Claims, and hereby quit-claims, waives any right to, and covenants not to sue any Schlumberger Released Party with respect to any Released Claim, that any Hanover Releasing Party has, had or may, can or shall have, hold, own or claim to have, own or hold, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the day of the date of this Agreement. 2.3 Complete Defense. Each of the Schlumberger Parties and the Hanover Parties further understands and agrees that the releases included in this Agreement shall be treated as a full and complete defense to, and will forever be a complete bar to the commencement or prosecution of any and all Released Claims arising out of any matter, cause or thing whatsoever from the beginning of the world to the day of the date of this Agreement, which may be brought, instituted or taken by any Schlumberger Releasing Party against any Hanover Released Party or by any Hanover Releasing Party against any Schlumberger Released Party. 4 2.4 Unknown Claims. Each of the Schlumberger Parties and the Hanover Parties understands and agrees that there is a risk that, subsequent to the execution of this Agreement and the releases and indemnification included herein, a Schlumberger Releasing Party or a Hanover Releasing Party will discover, incur or suffer Released Claims which were unknown or unanticipated at the time this Agreement was executed which, if known by a Schlumberger Releasing Party or a Hanover Releasing Party on the date this Agreement is executed, may have materially affected the decision of a Schlumberger Party or a Hanover Party to execute this Agreement. Each of the Schlumberger Parties and the Hanover Parties understands and agrees that, by reason of the releases and indemnification agreed to by it herein, it is assuming the risk of such unknown Released Claims and agrees that its release and indemnification of the persons and entities referred to in this Article II applies to any and all such Released Claims. 2.5 No Admission. Each of the Schlumberger Parties and the Hanover Parties further understands and agrees that entering into the Agreement (and the releases and indemnification included herein) is not to be construed as an admission of liability, or violation of any law or regulation or contract by any Schlumberger Released Party or any Hanover Released Party. 2.6 Full and Complete Settlement. The Schlumberger Parties and the Hanover Parties each intend that the releases and indemnification agreed to by it herein be complete and not subject to a claim of mistake of fact and that it expresses a FULL AND COMPLETE SETTLEMENT of the Released Claims. Regardless of the adequacy or inadequacy of the consideration paid, the release and indemnification included herein is intended to settle or avoid litigation and/or settle the Released Claims, and to be final and complete. 2.7 Definitions. For purposes of this Article II and Annex A hereto, the following terms shall have the meanings set forth below: (a) "Claims" shall mean any and all claims, counterclaims, demands, suits, proceedings, actions, causes of action, charges, losses, costs, debts, dues, attorneys' fees, sums of money, accounts, personal injuries, reckoning, bonds, bills, specialties, covenants, contracts, obligations, guarantees, liens, variances, trespasses, judgments, extents, executions, damages, controversies, liabilities, promises, agreements, acts or omissions, in each case of any kind or nature, at law or in equity, whether known or unknown, whether suspected or unsuspected, whether accrued or contingent, whether presently existing or having existed in the past or arising in the future. (b) "GKH" shall mean GKH Partners, L.P., GKH Investments, L.P., GKH Private Limited, HGW Associates, L.P., DWL Lumber Corp. and JAKK Holding Corp., each of their respective present and former parents, subsidiaries and affiliates, the present and former trustees, directors, officers, shareholders, general partners, limited partners, employees, agents, attorneys and representatives of each of the foregoing and the predecessors, successors and assigns of each of the foregoing. (c) "Hanover Litigation" shall mean the private litigation against Hanover (and any other party or parties) arising out of or based on the Hanover Restatements, including without limitation litigation brought under federal or state securities laws, the 5 Employee Retirement Security Act, or as shareholder derivative suits and the litigation set forth on Annex B. (d) "Hanover Restatements" shall mean the restatements of Hanover's financial statements, which restatements were made and filed with the SEC during calendar year 2002, the press reports related thereto made prior to the date hereof and the events giving rise thereto that were expressly publicly disclosed in such filings and press releases prior to the date hereof. (e) "Released Claims" shall mean any and all Claims listed on Annex A. 2.8 Indemnification. (a) General. The Hanover Parties hereby agree to jointly and severally indemnify, defend and hold harmless the Schlumberger Released Parties, including without limitation Rene Huck, with respect to all Losses (as defined in the Purchase Agreement) suffered by any of the Schlumberger Released Parties as a result of the assertion of any Claim by a person other than (i) a Schlumberger Released Party or (ii) PricewaterhouseCoopers, LLP, against a Schlumberger Released Party relating to, arising out of or in connection with the Hanover Restatements, including a Claim made in connection with the Hanover Litigation. (b) Process for Third Party Claims. The Schlumberger Released Party seeking indemnification pursuant to Section 2.8(a) shall notify Hanover of the assertion of any Claim by a person other than a Schlumberger Released Party in respect of which indemnity may be sought under Section 2.8(a); provided that the failure to notify Hanover will not relieve Hanover or the Purchaser of any liability under Section 2.8(a) except to the extent that Hanover demonstrates that its defense of such Claim is materially prejudiced by its failure to receive timely notice. Hanover shall assume the defense of any such Claim. The Schlumberger Released Party seeking indemnification may, at its own expense: (a) participate in the defense of any such Claim, and (b) upon notice to Hanover, at any time during the course of any such Claim, assume the defense thereof with counsel of its own choice and in the event of such assumption, shall have the exclusive right, subject to Section 2.8(c), to settle or compromise such Claim. If the Schlumberger Released Party assumes such defense, Hanover shall have the right (but not the duty) to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Schlumberger Released Party. (c) Settlement or Compromise. Any settlement or compromise made or caused to be made by Hanover, Purchaser or any Schlumberger Released Party, as the case may be, of any Claim referred to in Section 2.8(b) shall also be binding upon Hanover, Purchaser or the Schlumberger Released Party, as the case may be, in the same manner as if a final judgment or decree had been entered by a court of competent jurisdiction in the amount of such settlement or compromise; provided, that: (a) no obligation, restriction or Loss (as defined in the Purchase Agreement) shall be imposed on any Schlumberger Released Party as a result of such settlement or compromise by Hanover or Purchaser without its prior written consent, and (b) no obligation, restriction or Loss shall be imposed on Hanover or Purchaser as a result of such settlement or compromise by any Schlumberger Released Party without its prior written consent, which consent shall not be unreasonably withheld. 6 ARTICLE III MISCELLANEOUS 3.1 Amendment. Each of the Schlumberger Parties and the Hanover Parties understands and agrees that this Agreement (including the releases included herein) is irrevocable and may not be amended, modified, changes or rescinded except in a writing agreed to by all parties to this Agreement. 3.2 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. Facsimile signatures will be deemed to be original signatures for all applicable purposes. 3.3 Assignment. This Agreement may not be assigned (and any purported assignment shall be null and void) without the prior written consent of the non-assigning party. 3.4 Successors and Assigns. Except as otherwise expressly provided herein, all agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto. 3.5 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 3.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflicts of laws principles thereof, except that if it is necessary in any other jurisdiction to have the law of such other jurisdiction govern this Agreement in order for this Agreement to be effective in any respect, then the laws of such other jurisdiction shall govern this Agreement to such extent. 3.7 Consent to Jurisdiction. Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of any federal court located in the Borough of Manhattan in the City of New York or any New York state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it will not bring any action relating to this Agreement in any court other than a federal court sitting in the Borough of Manhattan in the City of New York or a New York state court. 3.8 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RESPECTIVE RIGHT TO A JURY TRIAL OF ANY PERMITTED CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY DEALINGS BETWEEN ANY OF THE PARTIES HERETO RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, 7 AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR OTHER MODIFICATIONS TO THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR TO ANY OTHER DOCUMENT OR AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. 3.9 Service of Process. Each of the parties hereto irrevocably consents to the service of any process, pleading, notices or other papers by the mailing of copies thereof by registered, certified or first class mail, postage prepaid, to such party at such party's address set forth herein, or by any other method provided or permitted under New York law; provided that if either party hereto effects such service of process by any method other than transmittal thereof via overnight courier, charges prepaid, such party shall simultaneously transmit a copy thereof via overnight courier, charges prepaid. 3.10 Reproduction of Documents. This Agreement and all documents relating hereto, including, but not limited to, (a) consents, waivers, amendments and modifications which may hereafter be executed and (b) certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, optical disk, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 3.11 Remedies. Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party shall be entitled to immediate injunctive relief or specific performance without bond or the necessity of showing actual monetary damages in order to enforce or prevent any violations of the provisions of this Agreement. 3.12 Complete Agreement. This Agreement and the Exhibits hereto constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supercedes all prior and contemporaneous negotiations and agreements, oral or written. All prior or contemporaneous negotiations or agreements are deemed incorporated and merged into this Agreement and are deemed to have been abandoned if not so incorporated. Each of the parties hereto represents that no promises or inducements not herein expressed have been made to any party or have caused any party to sign this Agreement (or agree to the releases included herein). No representations, oral or written, are being relied upon by any party in executing this Agreement other than the express representations of this Agreement. All parties to this Agreement have negotiated and participated in its drafting (including the releases included herein) and the Agreement and terms hereof shall not be construed in favor of or against any party as the drafter of the Agreement. 8 3.13 Severability. If any provision or term of this Agreement is held to be illegal, invalid, or unenforceable, such provision or term shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision or term there shall be added automatically as a part of this Agreement another provision or term as similar to the illegal, invalid, or unenforceable provision as may be possible and that is legal, valid, and enforceable. 3.14 Investigation. Each of the Schlumberger Parties and the Hanover Parties, through and by signature of an authorized officer below, represents that it has read this Agreement (including the releases included herein) and fully understands all of its and their terms; that it has conferred with its attorney prior to signing the same, or that it knowingly and voluntarily has chosen not to confer with its attorney; and that it understands any rights that it may have and signs this Agreement (and agrees to the releases included herein) with full knowledge of any such rights. 3.15 Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as STC designates by written notice to Hanover, and shall be deemed to have been given upon delivery, if delivered personally, two (2) business days after mailing, if mailed, or one (1) business day after delivery to the courier, if delivered by overnight courier service: If to Hanover, to: Hanover Compressor Company 12001 North Houston Rosslyn Road Houston, Texas 77086 Attn: General Counsel Fax: (281) 405-6203 If to STC, to: Schlumberger Technology Corporation 300 Schlumberger Drive MD:23 Sugar Land, Texas 77478 Attn: General Counsel Fax: (281) 285-6952 with a copy to (which shall not constitute notice): 9 Gray Cary Ware & Freidenrich 1221 South MoPac, Suite 400 Austin, Texas 78746-6875 Attn: Brian P. Fenske, Esq. Fax: (512) 457-7001 Delivery of notice to Hanover in compliance with this Section 3.15 shall constitute valid notice to the Hanover Parties and delivery of notice to STC in compliance with this Section 3.15 shall constitute valid notice to the Schlumberger Parties. [The rest of this page is intentionally left blank.] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. SCHLUMBERGER TECHNOLOGY CORPORATION By: /s/ Dean Ferris ---------------------------------------- Name: Dean Ferris Title: Assistant Secretary SCHLUMBERGER OILFIELD HOLDINGS LIMITED By: /s/ Johnson O. Afllaka ---------------------------------------- Name: Johnson O. Afllaka Title: President SCHLUMBERGER SURENCO S.A. By: /s/ [illegible] ---------------------------------------- Name: [illegible] Title: President HANOVER COMPRESSOR COMPANY By: /s/ John E. Jackson ---------------------------------------- Name: John E. Jackson Title: Senior Vice President and Chief Financial Officer HANOVER COMPRESSION LIMITED PARTNERSHIP By: /s/ John E. Jackson ---------------------------------------- Name: John E. Jackson Title: Senior Vice President and Chief Financial Officer SIGNATURE PAGE PIGAP SETTLEMENT AGREEMENT ANNEX A RELEASED CLAIMS The following Claims shall constitute Released Claims for purposes of this Agreement: - - Any Claim under Section 1.2(a)(ii) of the Purchase Agreement. - - Any Claim under Section 1.7 of the Purchase Agreement. - - Any Claim under Section 5.11 of the Purchase Agreement. - - Any Claim under Article IX of the Purchase Agreement to the extent such Claim relates to Sections 1.2(a)(ii), 1.7 or 5.11 of the Purchase Agreement. - - Any Claim under the Letter Agreement dated August 7, 2001 from STC to Hanover relating to a delay or failure by PDVSA Petroleo y Gas, S.A. to consent to the transfer of the WilPro Interest (as defined in the Purchase Agreement). - - Any Claim under the form of the Hanover Note immediately prior to its amendment, modification and re-issuance in connection with this Agreement. - - Any Claims by the Hanover Releasing Parties against the Schlumberger Released Parties relating to, arising out of or in connection with WilPro, the WilPro Interest or the WilPro Companies (each as defined in the Purchase Agreement) other than pursuant to the agreements referenced herein entered into on or after the date hereof. - - Any Claims relating to, arising out of or in connection with the Hanover Restatements or the Hanover Litigation that have or could be asserted by the Hanover Releasing Parties against the Schlumberger Released Parties or by the Schlumberger Releasing Parties against the Hanover Released Parties. A-1 ANNEX B HANOVER LITIGATION HANOVER CLASS ACTION LITIGATION: 1 Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Hanover Compressor Co., et. al., No. H-02-0410 (S.D. Tex. Filed Feb. 4, 2002). 2 McBride v. Hanover Compressor Co., et. al., No. H-02-0431 (S.D. Tex. Filed Feb. 5, 2002). 3 Koch v. Hanover Compressor Co., et. al., No. H-02-0441 (S.D. Tex. Filed Feb. 6, 2002). 4 Schneider v. Hanover Compressor Co., et. al., No. H-02-0491 (S.D. Tex. Filed Feb. 7, 2002). 5 Goldstein v. Hanover Compressor Co., et. al., H-02-0526 (S.D. Tex. Filed Feb. 11, 2002) 6 Noyes v. Hanover Compressor Co., et. al., H-02-0574 (S.D. Tex. Filed Feb. 14, 2002). 7 Rocha v. Hanover Compressor Co. et. al., H-02-0594 (S.D. Tex. Filed Feb. 19, 2002). 8 Peck v. Hanover Compressor Co., et. al., H-02-0627 (S.D. Tex. Filed Feb. 20, 2002). 9 Mueller v. Hanover Compressor Co., et. al., H-02-0652 (S.D. Tex. Filed Feb. 21, 2002). 10 Langhoff v. Hanover Compressor Co., et. al., H-02-0764 (S.D. Tex. Filed Mar. 1, 2002). 11 Fox v. Hanover Compressor Co., et. al., H-02-0815 (S.D. Tex. Filed Mar. 5, 2002). 12 Rosen v. Goldberg, et. al., H-02-0959 (S.D. Tex. Filed Mar. 12, 2002). 13 Detectives Endowment Ass'n Annuity Fund v. Hanover Compressor Co., et. al., H-02-1016 (S.D. Tex. Filed Mar. 14, 2002). 14 Montag v. Hanover Compressor Co., et. al., H-02-1030 (S.D. Tex. Filed Mar. 15, 2002). 15 Anderson v. Hanover Compressor Co., et. al., H-02-2306 (S.D. Tex. June 20, 2002).

HANOVER DERIVATIVE LITIGATION: 1 Coffelt Family, LLC v. O'Connor, et. al., 19410 NC (Del. Ch. Filed Feb. 15, 2002). 2 Harbor Fin. Partners v. McGhan, et. al., H-02-0761 (S.D. Tex. Filed Mar. 1, 2002). 3 Carranza v. O'Connor, et. al., H-02-1430 (S.D. Tex. Filed Apr. 18, 2002). 4 Steves v. O'Connor, et. al., 02-1527 (S.D. Tex. Filed Apr. 24, 2002).

B-1 ~~5 Koch v. O'Connor, et. al., H-02-1332 (S.D. Tex. Filed Apr. 10, 2002). 6 Hensley v. McGhan, et. al., 2002-30987 (Tex. Dist. Ct. (Harris Co.) Filed June 20, 2002)).~~

ERISA COMPLAINTS: 1 Angleopoulos v. Hanover Compressor Co., et. al., H-03-1064 (S.D. Tex. Filed Mar. 26, 2003). 2 Freeman v. Hanover Compressor Co. et. al., H-03-1095 (S.D. Tex. Filed Mar. 31, 2003). 3 Kirkley v. Hanover Cos., et. al., H-03-1155 (S.D. Tex. Filed Apr. 4, 2003).

~~B-1~~ EX-10.3 13 h12863exv10w3.txt OFFSET RIGHTS AGREEMENT EXHIBIT 10.3 OFFSET RIGHTS AGREEMENT This OFFSET RIGHTS Agreement (this "Agreement") is made as of May 14, 2003 by and between Schlumberger Technology Corporation, a Texas corporation ("STC"), and Hanover Compressor Company, a Delaware corporation (the "Company"). WHEREAS, STC and the Company, among others, are parties to that certain PIGAP Settlement Agreement dated the date hereof (the "Settlement Agreement"). WHEREAS, in order to induce STC and the Company to enter into the Settlement Agreement, the Company and STC have executed and delivered this Agreement. Now, therefore, in consideration of the foregoing and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Indenture. 1.1 "Alliance Agreement" shall mean that certain Most Favored Supplier and Alliance Agreement dated as of August 31, 2001 by and between Schlumberger Oilfield Holdings Limited, STC and Hanover Compression Limited Partnership, as amended, restated, supplemented, waived, replaced, restructured or otherwise modified from time to time; provided that, in case of any replacement agreement, the parties to the Alliance Agreement shall have agreed in writing that such replacement agreement replaces all or a portion of the Alliance Agreement. 1.2 "Holder" shall mean STC and its Permitted Transferees. 1.3 "Indenture" shall mean the Indenture between the Company and Wachovia Bank, National Association, as Trustee, dated May 14, 2003, as amended or supplemented from time to time in accordance with the terms thereof. 1.4 "Material Adverse Effect" shall mean a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under the Indenture or the Securities or (c) the validity or enforceability of the Indenture or the Securities. 1.5 "Permitted Transferee" shall mean any direct or indirect Subsidiary of Schlumberger or any entity that merges or consolidates with or owns or acquires all of the equity securities or all or substantially all of the assets of STC, or any Subsidiary of such entity. 1.6 "Responsible Officer" shall mean any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of the Indenture. 1.7 "Senior Financial Officer" shall mean the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. ARTICLE II REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Holder that: 2.1 Organization; Power and Authority. The Company is a corporation duly organized validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it owns or holds under lease, to transact the business it transacts, to execute and deliver the Securities and to perform the provisions of the Indenture. 2.2 Authorization. The Indenture has been duly authorized by all necessary corporate action on the part of the Company, and, assuming it has been duly authorized, executed and delivered by the Trustee, will be a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Securities have been duly authorized by all necessary corporate action on the part of the Company, and, when executed by the Company and authenticated by the Trustee, will have been validly issued and delivered and will constitute a legal, valid and binding obligation of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2.3 Compliance with Laws, Other Instruments. The execution, delivery and performance by the Company of the Indenture and the Securities will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company under (1) its corporate charter or by-laws or (2) any material indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease or any other material agreement or instrument to which the Company is bound or by which the Company or any of its properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or 2 Governmental Authority applicable to the Company or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company. 2.4 Governmental Authorizations. No material consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of the Indenture or the Securities other than (i) those that have been previously obtained and, on the date of hereof, remain in full force and effect and (ii) those that may be necessary as contemplated in the Registration Rights Agreement dated the date hereof between the Company and STC. 2.5 No Default under Section 8.1(d) of the Credit Agreement. On the date hereof, the Company is not in default and no waiver of default is currently in effect under Section 8.1(d) of the Credit Agreement. ARTICLE III INFORMATION AS TO THE COMPANY 3.1 Quarterly Financial Statements. Within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), the Company shall deliver to the Holder duplicate copies of: (a) an unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (b) unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments. Notwithstanding the foregoing, the electronic filing with the Securities and Exchange Commission on EDGAR of the Company's Quarterly Report on Form 10-Q for such quarterly period prepared in compliance with the requirements therefor shall be deemed to satisfy the requirements of this Section 3.1. 3.2 Annual Financial Statements. Within 90 days after the end of each fiscal year of the Company, the Company shall deliver to the Holder duplicate copies of: (a) an audited consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (b) audited consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, 3 setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances. Notwithstanding the foregoing, the electronic filing with the Securities and Exchange Commission on EDGAR of the Company's Annual Report on Form 10-K for such fiscal year prepared in accordance with the requirements therefor shall be deemed to satisfy the requirements of this Section 3.2. 3.3 SEC and Other Reports. Promptly upon their becoming available, the Company shall deliver to the Holder one copy of (1) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally and (2) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission. Notwithstanding the foregoing, the electronic filing with the Securities and Exchange Commission on EDGAR of any such financial statement, report, notice, proxy statement, annual or periodic report, registration statement or prospectus shall be deemed to satisfy the requirements of this Section 3.3. 3.4 Requested Information. With reasonable promptness, the Company shall deliver to the Holder such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations under the Securities as from time to time may be reasonably requested by the Holder. ARTICLE IV OFFSET AGREEMENT 4.1 Offset Prepayment. (a) The Holder may provide a written notice (an "Offset Notice") to the Trustee (at such address and in such manner as provided in the Indenture) and the Company of its election to have an amount of sums identified by the Holder in the Offset Notice as being due and payable by the Holder or any of its Affiliates to the Company or any of its Affiliates in respect of the products or services provided to the Holder or any of its Affiliates in accordance with the Company's "Most Favored Supplier Status" established pursuant to Section 3.4 of the Alliance Agreement offset against the Available Offset Amount (as defined below). So long as, within five (5) Business Days after the identification of such sums in the Offset Notice, the Company has not in good faith claimed in a writing delivered to the Holder and the Trustee, that such sums were not incurred in accordance with the Company's "Most Favored Supplier Status," such sums may be offset (an "Offset Prepayment") against an equal portion of any Additional Interest, interest, if any, and the Original Issue Discount accrued through the date of the Offset Notice plus $23,378,423 (collectively, the "Available Offset Amount"). 4 (b) Any Offset Prepayment shall be applied first against interest, if any, second against any accrued Additional Interest, third against the Original Issue Discount, and fourth against the Issue Price; provided, however, such Offset Prepayment shall not exceed the Available Offset Amount. For purposes of determining the Available Offset Amount at any time, the initial $23,378,423 portion of the Available Offset Amount shall be reduced by the amount of any Offset Prepayment previously applied against the Issue Price. (c) Notwithstanding the foregoing, in no event shall any amounts be deducted from the Available Offset Amount and no obligations of the Holder or any of its Affiliates be deemed satisfied in full until the Holder has delivered all Securities to the Trustee for cancellation and re-issuance to reflect the new Principal Amount, accrued Additional Interest, interest, if any, Issue Price and/or the amount of Original Issue Discount accrued as of such re-issuance, as the case may be, as necessary to reflect the result of the application of the Offset Prepayment. In connection with the delivery of all Securities for cancellation and re-issuance pursuant to the preceding sentence, the Holder shall deliver a written consent to amend the Principal Amount pursuant to Section 9.02(1) of the Indenture to reflect the Principal Amount set forth on the re-issued Securities. ARTICLE V MISCELLANEOUS 5.1 Term and Termination. This Agreement shall terminate and be of no further force and effect upon the earlier to occur of (i) the Holder no longer owns all the issued and outstanding Securities or (ii) the discharge of all liabilities on the Securities pursuant to Section 8.01 of the Indenture. STC agrees to notify the Trustee and the Company in writing that the Holder no longer owns all the issued and outstanding Securities within five (5) Business Days following the first date that the Holder no longer owns all the issued and outstanding Securities. 5.2 Survival. All representations and warranties contained herein shall survive the execution and delivery of this Agreement until the termination of this Agreement in accordance with the provisions of Section 5.1. 5.3 Amendments and Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the prior written agreement of the Company and STC. Any waiver, permit, consent or approval of any kind or character on the part of any of the parties hereto of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing. 5.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. Facsimile signatures will be deemed to be original signatures for all applicable purposes. 5.5 Assignment. This Agreement may not be assigned (and any purported assignment shall be null and void) without the prior written consent of the non-assigning party; provided, however, STC may assign this agreement to its Permitted Transferees. 5 5.6 Successors and Assigns. Except as otherwise expressly provided herein, all agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto. 5.7 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 5.8 Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as STC designates by written notice to Hanover, and shall be deemed to have been given upon delivery, if delivered personally, two (2) business days after mailing, if mailed, or one (1) business day after delivery to the courier, if delivered by overnight courier service: If to Hanover, to: Hanover Compressor Company 12001 North Houston Rosslyn Road Houston, Texas 77086 Attn: General Counsel Fax: (281) 405-6203 If to STC, to: Schlumberger Technology Corporation 300 Schlumberger Drive MD:23 Sugar Land, Texas 77478 Attn: General Counsel Fax: (281) 285-6952 with a copy to (which shall not constitute notice): Schiff Hardin & Waite 6600 Sears Tower Chicago, Illinois 60606 Attention: Mark A. Sternberg, Esq. Fax: (312) 258-5700 5.9 Governing Law. This Agreement and the transactions contemplated hereby shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflicts of laws principles thereof, except that if it is necessary in any other jurisdiction to have the law of such other jurisdiction govern this Agreement in order for this Agreement to be effective in any respect, then the laws of such other jurisdiction shall govern this Agreement to such extent. 5.10 Consent to Jurisdiction. Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of any federal court located in the Borough of Manhattan in the City of 6 New York, New York or any New York state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it will not bring any action relating to this Agreement in any court other than a federal court sitting in the Borough of Manhattan in the City of New York, New York or a New York state court. 5.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RESPECTIVE RIGHT TO A JURY TRIAL OF ANY PERMITTED CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY DEALINGS BETWEEN ANY OF THE PARTIES HERETO RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR OTHER MODIFICATIONS TO THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR TO ANY OTHER DOCUMENT OR AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. 5.12 Service of Process. Each of the parties hereto irrevocably consents to the service of any process, pleading, notices or other papers by the mailing of copies thereof by registered, certified or first class mail, postage prepaid, to such party at such party's address set forth herein, or by any other method provided or permitted under New York law; provided that if either party hereto effects such service of process by any method other than transmittal thereof via overnight courier, charges prepaid, such party shall simultaneously transmit a copy thereof via overnight courier, charges prepaid. 5.13 Reproduction of Documents. This Agreement and all documents relating hereto, including, but not limited to, (a) consents, waivers, amendments and modifications which may hereafter be executed and (b) certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, optical disk, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 5.14 Remedies. Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party shall be entitled to immediate 7 injunctive relief or specific performance without bond or the necessity of showing actual monetary damages in order to enforce or prevent any violations of the provisions of this Agreement. 5.15 Complete Agreement. This Agreement, together with the Settlement Agreement and the agreements named therein, constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supercedes all prior and contemporaneous negotiations and agreements, oral or written. All prior or contemporaneous negotiations or agreements are deemed incorporated and merged into this Agreement and are deemed to have been abandoned if not so incorporated. Each of the parties hereto represents that no promises or inducements not herein expressed have been made to any party or have caused any party to sign this Agreement. No representations, oral or written, are being relied upon by any party in executing this Agreement other than the express representations of this Agreement. All parties to this Agreement have negotiated and participated in its drafting and the Agreement and terms hereof shall not be construed in favor of or against any party as the drafter of the Agreement. 5.16 Severability. If any provision or term of this Agreement is held to be illegal, invalid, or unenforceable, such provision or term shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision or term there shall be added automatically as a part of this Agreement another provision or term as similar to the illegal, invalid, or unenforceable provision as may be possible and that is legal, valid, and enforceable. 5.17 Investigation. Each of the parties hereto, through and by signature of an authorized officer below, represents that it has read this Agreement and fully understands all of its and their terms; that it has conferred with its attorney prior to signing the same, or that it knowingly and voluntarily has chosen not to confer with its attorney; and that it understands any rights that it may have and signs this Agreement with full knowledge of any such rights. * * * * * [Signature Page Follows] 8 The parties hereto have executed this Agreement as of the date first set forth above. HANOVER COMPRESSOR COMPANY By: /s/ John E. Jackson ----------------------------------------- Name: John E. Jackson --------------------------------------- Title: Senior Vice President and Chief Financial Officer -------------------------------------- SCHLUMBERGER TECHNOLOGY CORPORATION By: /s/ Dean Ferris ----------------------------------------- Name: Dean Ferris --------------------------------------- Title: Assistant Secretary -------------------------------------- SIGNATURE PAGE OFFSET RIGHTS AGREEMENT EX-10.6 14 h12863exv10w6.txt HANOVER GUARANTEE EXHIBIT 10.6 HANOVER GUARANTEE HANOVER GUARANTEE, dated as of December 15, 2003, made by HANOVER COMPRESSOR COMPANY (the "Guarantor"), in favor of JPMORGAN CHASE BANK, as (in such capacity, the " ") for the lenders (the "Lenders") parties to the Credit Agreement, dated as of December 15, 2003 (as may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Guarantor, Hanover Compression Limited Partnership, a Delaware limited partnership ("HCLP"), the Lenders, Bank One, NA, as syndication agent and the Administrative Agent. W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to HCLP upon the terms and subject to the conditions set forth therein, to be evidenced by the Notes issued by HCLP under the Credit Agreement; WHEREAS, it is a condition precedent to the obligation of the Lenders to continue to make their respective Loans to HCLP under the Credit Agreement that the Guarantor shall have executed and delivered this Guarantee to the Administrative Agent for the ratable benefit of the Lenders. NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective loans to HCLP under the Credit Agreement, the Guarantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, as follows: 1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. (b) As used herein, "Obligations" means the collective reference to the unpaid principal of and interest on the Notes and all other obligations and liabilities of HCLP to the Administrative Agent or the Lenders (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to HCLP, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, the Notes, the Letters of Credit, the other Loan Documents or any other document made, delivered or given in connection therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the 2 Lenders that are required to be paid by HCLP or the Guarantor pursuant to the terms of the Credit Agreement or this Agreement or any other Loan Document). (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Guarantee. (a) Subject to the provisions of paragraph 2(b), the Guarantor hereby, unconditionally and irrevocably, guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by HCLP when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of the Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by the Guarantor under applicable federal and state laws relating to the insolvency of debtors. (c) The Guarantor further agrees to pay any and all expenses (including, without limitation, all fees and disbursements of counsel) which may be paid or incurred by the Administrative Agent or any Lender in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, the Guarantor under this Guarantee. This Guarantee shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto HCLP may be free from any Obligations. (d) The Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of the Guarantor hereunder without impairing this Guarantee or affecting the rights and remedies of the Administrative Agent or any Lender hereunder. (e) No payment or payments made by HCLP, the Guarantor, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from HCLP, the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made by the Guarantor in respect of the Obligations or payments received or collected from the Guarantor in respect of the Obligations, remain liable for the Obligations up to the maximum liability of the Guarantor hereunder until the Obligations are paid in full and the Commitments are terminated. 3. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, the Guarantor hereby irrevocably authorizes each Lender at any time and from time to 3 time without notice to such Guarantor, any such notice being expressly waived by the Guarantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender to or for the credit or the account of such Guarantor, or any part thereof in such amounts as such Lender may elect, against and on account of the obligations and liabilities of such Guarantor to such Lender hereunder and claims of every nature and description of such Lender against such Guarantor, in any currency, whether arising hereunder, under the Credit Agreement, any Note, any Letter of Credit or any Loan Document, as such Lender may elect, whether or not the Administrative Agent or any Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Administrative Agent and each Lender shall notify such Guarantor promptly of any such set-off and the application made by the Administrative Agent or such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent and each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Administrative Agent or such Lender may have. 4. No Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder or any set-off or application of funds of the Guarantor by any Lender, the Guarantor shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against HCLP or any collateral security or guarantee or right of offset held by any Lender for the payment of the Obligations, nor shall the Guarantor seek or be entitled to seek any contribution or reimbursement from HCLP or any other guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by HCLP on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 5. Amendments, etc. with respect to the Obligations; Waiver of Rights. The Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Guarantor and without notice to or further assent by the Guarantor, any demand for payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded by such party and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and the Credit Agreement, the Notes and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent 4 or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. When making any demand hereunder against the Guarantor, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on HCLP or the Guarantor or guarantor, and any failure by the Administrative Agent or any Lender to make any such demand or to collect any payments from HCLP or any such other guarantor or any release of HCLP or such other guarantor shall not relieve the Guarantor in respect of which a demand or collection is not made or the Guarantor not so released of its several obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Administrative Agent or any Lender against the Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 6. Guarantee Absolute and Unconditional. The Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Guarantee or acceptance of this Guarantee, the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between HCLP and the Guarantor, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guarantee. The Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon HCLP or the Guarantor with respect to the Obligations. The Guarantor understands and agrees that this Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of the Credit Agreement, any Note or any other Loan Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by HCLP against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of HCLP or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of HCLP for the Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against the Guarantor, the Administrative Agent and any Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against HCLP or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to pursue such other rights or remedies or to collect any payments from HCLP or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of HCLP or any such other Person or any such collateral security, guarantee or right of offset, shall not relieve such Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent and the Lenders against such Guarantor. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantor and its successors and assigns, and shall inure to the benefit of the Administrative Agent and the Lenders, and their 5 respective successors, indorsees, transferees and assigns, until all the Obligations and the obligations of the Guarantor under this Guarantee shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement HCLP may be free from any Obligations. 7. Reinstatement. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of HCLP or the Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, HCLP or the Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 8. Payments. The Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in U.S. Dollars at the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017. 9. Representations and Warranties. The Guarantor hereby represents and warrants that: (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority and the legal right to own and operate its property, to lease the property it operates and to conduct the business in which it is currently engaged; (b) it has the corporate power and authority and the legal right to execute and deliver, and to perform its obligations under, this Guarantee, and has taken all necessary corporate action to authorize its execution, delivery and performance of this Guarantee; (c) this Guarantee constitutes a legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally, general equitable principles and an implied covenant of good faith and fair dealing; (d) the execution, delivery and performance of this Guarantee will not violate any provision of any Requirement of Law or Contractual Obligation of such Guarantor and will not result in or require the creation or imposition of any Lien on any of the properties or revenues of such Guarantor pursuant to any Requirement of Law or Contractual Obligation of the Guarantor; (e) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of such Guarantor) is required in connection with the execution, delivery, performance, validity or enforceability of this Guarantee; and (f) no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of such Guarantor, threatened by or against such Guarantor or against any of its properties or revenues with respect to this Guarantee or any of the transactions contemplated hereby, which would reasonably be expected to have a material 6 adverse effect on the business, operations, property or financial or other condition of such Guarantor. 10. Authority of Administrative Agent. The Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guarantee with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and such Guarantor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and the Guarantor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 11. Notices. All notices, requests and demands to or upon the Administrative Agent, any Lender or the Guarantor to be effective shall be in writing (or by telex, fax or similar electronic transfer confirmed in writing) and shall be deemed to have been duly given or made when delivered by hand or if by overnight courier service, when received or if given by mail, when deposited in the mails by certified mail, return receipt requested, or if by telex, fax or similar electronic transfer, when sent and receipt has been confirmed, addressed as follows: (a) if to the Administrative Agent or any Lender, at its address or transmission number for notices provided in subsection 11.2 of the Credit Agreement; and (b) if to the Guarantor, at its address or transmission number for notices set forth under its signature below. The Administrative Agent, each Lender and the Guarantor may change its address and transmission numbers for notices by notice in the manner provided in this Section. 12. Counterparts. This Guarantee may be executed by the Guarantor on any number of separate counterparts, and all of said ------------ counterparts taken together shall be deemed to constitute one and the same instrument. A set of the counterparts of this Guarantee signed by the Guarantor shall be lodged with the Administrative Agent. 13. Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 14. Integration. This Guarantee represents the agreement of the Guarantor with respect to the subject matter hereof and there are no promises or representations by the Administrative Agent or any Lender relative to the subject matter hereof not reflected herein. 15. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Guarantor and the Administrative Agent, 7 provided that any provision of this Guarantee may be waived by the Administrative Agent and the Lenders in a letter or agreement executed by the Administrative Agent or by telex or facsimile transmission from the Administrative Agent. (b) Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to paragraph 15(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 16. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 17. Successors and Assigns. This Guarantee shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of the Administrative Agent and the Lenders and their successors and assigns. 18. Governing Law. This Guarantee shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 8 IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. HANOVER COMPRESSOR COMPANY By: /S/ John E. Jackson ------------------------------------ Name: John E. Jackson Title: Senior Vice President and CFO Address for Notices: 12001 North Houston Rosslyn Suite 350 Houston, Texas 77086 Attn: Chief Financial Officer Fax: 281-447-8781 EX-10.7 15 h12863exv10w7.txt SUBSIDIARIES' GUARANTEE EXHIBIT 10.7 SUBSIDIARIES' GUARANTEE SUBSIDIARIES' GUARANTEE, dated as of December 15, 2003, made by each of the corporations that are signatories hereto (the "Guarantors"), in favor of JPMORGAN CHASE BANK, as agent (in such capacity, the "Administrative Agent") for the lenders (the "Lenders") parties to the Credit Agreement, dated as of December 15, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Hanover Compressor Company, a Delaware corporation ("Hanover"), Hanover Compression Limited Partnership, a Delaware limited partnership (the "HCLP"), the Lenders, Bank One, NA, as syndication agent, and the Administrative Agent. W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to HCLP upon the terms and subject to the conditions set forth therein, to be evidenced by the Notes issued by HCLP under the Credit Agreement; WHEREAS, each Guarantor is a Qualified Subsidiary of HCLP; WHEREAS, the proceeds of the Loans will be used in part to enable HCLP to make valuable transfers (as determined as provided herein) to some of the Guarantors in connection with the operation of their respective businesses; WHEREAS, it is a condition precedent to the obligation of the Lenders to amend and restate the Credit Agreement and to make their respective Loans to HCLP under the Credit Agreement that the Guarantors shall have executed and delivered this Guarantee to the Administrative Agent for the ratable benefit of the Lenders. NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to amend and restate the Credit Agreement and to induce the Lenders to make their respective loans to HCLP under the Credit Agreement, the Guarantors hereby agree with the Administrative Agent, for the ratable benefit of the Lenders, as follows: 1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. (b) As used herein, "Obligations" means the collective reference to the unpaid principal of and interest on any outstanding Loans, Reimbursement Obligations and all other obligations and liabilities of HCLP to the Administrative Agent or the Lenders (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to HCLP, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, the Notes, the Letters of Credit, 2 the other Loan Documents or any other document made, delivered or given in connection therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by HCLP or the Guarantor pursuant to the terms of the Credit Agreement or this Agreement or any other Loan Document). (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Guarantee. (a) Subject to the provisions of paragraph 2(b), each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by HCLP when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors. (c) Each Guarantor further agrees to pay any and all expenses (including, without limitation, all fees and disbursements of counsel) which may be paid or incurred by the Administrative Agent or any Lender in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, such Guarantor under this Guarantee. This Guarantee shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto HCLP may be free from any Obligations. (d) Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing this Guarantee or affecting the rights and remedies of the Administrative Agent or any Lender hereunder. (e) No payment or payments made by HCLP, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from HCLP, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made by such Guarantor in respect of the Obligations or payments received or collected from such Guarantor in respect of the Obligations, remain 3 liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are paid in full and the Commitments are terminated. 3. Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder who has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 5 hereof. The provisions of this Section shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder. 4. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, each Guarantor hereby irrevocably authorizes each Lender at any time and from time to time without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender to or for the credit or the account of such Guarantor, or any part thereof in such amounts as such Lender may elect, against and on account of the obligations and liabilities of such Guarantor to such Lender hereunder and claims of every nature and description of such Lender against such Guarantor, in any currency, whether arising hereunder, under the Credit Agreement, any Note, any Letter of Credit or any Loan Document, as such Lender may elect, whether or not the Administrative Agent or any Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Administrative Agent and each Lender shall notify such Guarantor promptly of any such set-off and the application made by the Administrative Agent or such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent and each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Administrative Agent or such Lender may have. 5. No Subrogation. Notwithstanding any payment or payments made by any of the Guarantors hereunder or any set-off or application of funds of any of the Guarantors by any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against HCLP or any other Guarantor or any collateral security or guarantee or right of offset held by any Lender for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from HCLP or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by HCLP on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such 4 Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 6. Amendments, etc. with respect to the Obligations; Waiver of Rights. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded by such party and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and the Credit Agreement, the Notes and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. When making any demand hereunder against any of the Guarantors, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on HCLP or any other Guarantor or guarantor, and any failure by the Administrative Agent or any Lender to make any such demand or to collect any payments from HCLP or any such other Guarantor or guarantor or any release of HCLP or such other Guarantor or guarantor shall not relieve any of the Guarantors in respect of which a demand or collection is not made or any of the Guarantors not so released of their several obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Administrative Agent or any Lender against any of the Guarantors. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 7. Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Guarantee or acceptance of this Guarantee, the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between HCLP and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guarantee. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon HCLP or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that this Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of the Credit Agreement, any Note or any other Loan Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or 5 from time to time held by the Administrative Agent or any Lender (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by HCLP against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of HCLP or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of HCLP for the Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against any Guarantor, the Administrative Agent and any Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against HCLP or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to pursue such other rights or remedies or to collect any payments from HCLP or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of HCLP or any such other Person or any such collateral security, guarantee or right of offset, shall not relieve such Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent and the Lenders against such Guarantor. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon each Guarantor and the successors and assigns thereof, and shall inure to the benefit of the Administrative Agent and the Lenders, and their respective successors, indorsees, transferees and assigns, until all the Obligations and the obligations of each Guarantor under this Guarantee shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement HCLP may be free from any Obligations. 8. Reinstatement. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of HCLP or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, HCLP or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 9. Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in U.S. Dollars at the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017. 10. Representations and Warranties. Each Guarantor hereby represents and warrants that: (a) it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority and the legal right to own and operate its property, to lease the property it operates and to conduct the business in which it is currently engaged; (b) it has the corporate power and authority and the legal right to execute and deliver, and to perform its obligations under, this Guarantee, and has taken all necessary corporate action to authorize its execution, delivery and performance of this Guarantee; 6 (c) this Guarantee constitutes a legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally, general equitable principles and an implied covenant of good faith and fair dealing; (d) the execution, delivery and performance of this Guarantee will not violate any provision of any Requirement of Law or Contractual Obligation of such Guarantor and will not result in or require the creation or imposition of any Lien on any of the properties or revenues of such Guarantor pursuant to any Requirement of Law or Contractual Obligation of the Guarantor; (e) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of such Guarantor) is required in connection with the execution, delivery, performance, validity or enforceability of this Guarantee; and (f) no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of such Guarantor, threatened by or against such Guarantor or against any of its properties or revenues with respect to this Guarantee or any of the transactions contemplated hereby, which would reasonably be expected to have a material adverse effect on the business, operations, property or financial or other condition of such Guarantor. 11. Authority of Administrative Agent. Each Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guarantee with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and such Guarantor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Guarantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. 12. Notices. All notices, requests and demands to or upon the Administrative Agent, any Lender or any Guarantor to be effective shall be in writing (or by telex, fax or similar electronic transfer confirmed in writing) and shall be deemed to have been duly given or made when delivered by hand or if by overnight courier service, when received or if given by mail, when deposited in the mails by certified mail, return receipt requested, or if by telex, fax or similar electronic transfer, when sent and receipt has been confirmed, addressed as follows: (a) if to the Administrative Agent or any Lender, at its address or transmission number for notices provided in subsection 11.2 of the Credit Agreement; and (b) if to any Guarantor, at its address or transmission number for notices set forth under its signature below. 7 The Administrative Agent, each Lender and each Guarantor may change its address and transmission numbers for notices by notice in the manner provided in this Section. 13. Counterparts. This Guarantee may be executed by one or more of the Guarantors on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the counterparts of this Guarantee signed by all the Guarantors shall be lodged with the Administrative Agent. 14. Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 15. Integration. This Guarantee represents the agreement of each Guarantor with respect to the subject matter hereof and there are no promises or representations by the Administrative Agent or any Lender relative to the subject matter hereof not reflected herein. 16. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each Guarantor and the Administrative Agent, provided that any provision of this Guarantee may be waived by the Administrative Agent and the Lenders in a letter or agreement executed by the Administrative Agent or by telex or facsimile transmission from the Administrative Agent. (b) Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to paragraph 16(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 17. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 18. Successors and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Administrative Agent and the Lenders and their successors and assigns. 8 19. Governing Law. This Guarantee shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 9 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. ENERGY TRANSFER -- HANOVER VENTURES L.P. GULF COAST DISMANTLING, INC. HANOVER ASIA, INC. HANOVER AUSTRALIA, L.L.C. HANOVER COLOMBIA LEASING LLC HANOVER COMPRESSED NATURAL GAS SERVICES, LLC HANOVER COMPRESSOR NIGERIA, INC. HANOVER COMPRESSION GENERAL HOLDINGS, LLC HANOVER ECUADOR L.L.C. HANOVER GENERAL ENERGY TRANSFER, LLC HANOVER IDR, INC. HANOVER LIMITED ENERGY TRANSFER, LLC HANOVER MEASUREMENT, LLC HANOVER PARTNERS NIGERIA LLC HANOVER POWER, LLC HANOVER POWER (GATES), LLC HANOVER SPE, L.L.C. HANOVER/TRINIDAD, L.L.C. HC CAYMAN LLC HC LEASING, INC. HCC HOLDINGS, INC. HCL COLOMBIA, INC. KOG, INC. NIGERIAN LEASING, LLC SOUTHWEST INDUSTRIES, INC. By: /s/ John E. Jackson ---------------------------------------- Name: John E. Jackson Title: Vice President and Treasurer 10 HANOVER HL HOLDINGS, LLC HANOVER HL, LLC By: /s/ Victoria L. Garrett ---------------------------------------- Name: Victoria L. Garrett Title: Manager EX-10.36 16 h12863exv10w36.txt AMEND.TO GUARANTEES,CREDIT & PARTICIPATION AGMT EXHIBIT 10.36 AMENDMENT AMENDMENT, dated as of December 15, 2003 (this "Amendment"), under (i) the Guarantee (the "2000B Guarantee") and the Credit Agreement (the "2000B Credit Agreement"), as defined in the Participation Agreement, dated as of October 27, 2000 (as the same may have been, amended, supplemented or otherwise modified from time to time, the "2000B Participation Agreement"), among Hanover Compression Limited Partnership (formerly known as Hanover Compression Inc., "HCLP"), Hanover Equipment Trust 2000B, (the "2000B Lessor"), Bank Hapoalim B.M. and FBTC Leasing Corp., as investors, the lenders parties thereto (the "2000B Lenders") and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), a New York banking corporation, as the administrative agent for the 2000B Lenders (the "Agent") and (ii) the Guarantee (the "2000A Guarantee") and the Credit Agreement (the "2000A Credit Agreement"), as defined in the Participation Agreement, dated as of March 13, 2000 (as the same may have been, amended, supplemented or otherwise modified from time to time, the "2000A Participation Agreement"), among HCLP, Hanover Equipment Trust 2000A (the "2000A Lessor"), First Union National Bank and Scotiabanc Inc., as investors, the lenders parties thereto (the "2000A Lenders") and the Agent, as agent for the 2000A Lenders. The 2000B Participation Agreement and the 2000A Participation Agreement are collectively hereinafter referred to as the "Participation Agreements". The 2000B Guarantee and the 2000A Guarantee are collectively hereinafter referred to as the "Synthetic Guarantees", and the 2000B Credit Agreement and the 2000A Credit Agreement are collectively referred to herein as the "Synthetic Credit Agreements." W I T N E S S E T H: WHEREAS, Hanover and HCLP have requested that the Agent and the Required Lenders under each of the Participation Agreements, Synthetic Guarantees and Synthetic Credit Agreements amend certain of the provisions of each of the Participation Agreements, Synthetic Guarantees and Synthetic Credit Agreements; and WHEREAS, the Agent and the Required Lenders under each of the Participation Agreements, Synthetic Guarantees and Synthetic Credit Agreements are agreeable to the requested amendments, but only on the terms and subject to the conditions set forth herein; NOW THEREFORE, in consideration of the premises herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: I. Defined Terms. As used in this Amendment, terms defined in the preamble hereof and the recitals hereto are used herein as so defined, and terms defined in any of the Participation Agreements and the Synthetic Guarantees and not defined herein are used herein as therein defined. II. Amendments to the Synthetic Guarantees, Annex A of the Participation Agreements and the Synthetic Credit Agreements. 1. Amendments to Annex A of the Participation Agreements. (a) Annex A of each of the Participation Agreements is hereby amended by adding the following defined terms in proper alphabetical order: 2 "Administrative Agent": JPMorgan Chase Bank, a New York banking corporation, in its capacity as administrative agent under the Corporate Credit Agreement. "BOCM": Banc One Capital Markets, Inc. "Cayman Note": that certain Non-Recourse Promissory Note, dated as of May 14, 2003, in the original principal amount of $58,425,333.33, executed by Hanover Cayman Limited and payable to the order of Schlumberger Surenco S.A. "Co-Lead Arrangers": the collective reference to JPMorgan and BOCM. "Consolidated EBITDAR": with respect to any period, Consolidated EBITDA for such period plus the Consolidated Lease Expense of a Person for such period. "Consolidated Intangibles": at any time, all amounts included in Consolidated Net Worth of any Person at such time which, in accordance with GAAP, would be classified as intangible assets on a consolidated balance sheet of such Person and its Subsidiaries, including, without limitation, goodwill (other than negative goodwill), including (but without duplication) any amounts (however designated on the balance sheet) representing the cost of acquisitions in excess of underlying net tangible assets, and patents, trademarks, copyrights and other intangibles. "Consolidated Leverage Ratio": as defined in Section 11.1(c) of the Guarantee. "Consolidated Senior Indebtedness": at a particular date, as to any Person, Consolidated Indebtedness of such Person and its Subsidiaries other than (i) the 2001A Lease Guarantee, (ii) the 2001B Lease Guarantee, (iii) the 2003 Notes Subordinated Guarantee, and (iv) any unsecured subordinated debt or any subordinated guarantees not included in clauses (i)-(iii) above and otherwise permitted herein. "Consolidated Tangible Net Worth": at any date, an amount equal to Consolidated Net Worth at such date less Consolidated Intangibles at such date; provided, that for purposes of Section 11.1(a) of the Guarantee, this definition will not include (a) the writedown of any of the Equipment Lease Transactions coming on-balance sheet on or after July 1, 2003 or (b) the effects of marking to market any portion of the expenses attributable to the Securities Litigation Settlement. "Corporate Credit Agreement": the Credit Agreement, dated December 15, 2003 (as amended, supplemented or otherwise modified from time to time), among Hanover, HCLP and several banks and other financial institutions from time to time parties thereto and the Agents. "Corporate Credit Agreement Closing Date": December 15, 2003. "Credit Parties": as defined in the Corporate Credit Agreement. "Exchange Act": as defined in Section 6.1(q) of the Credit Agreement. "Excluded Unqualified Subsidiary": any Unqualified Subsidiary not organized under a jurisdiction of the United States in respect of which either (a) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, or the pledging of assets by such Subsidiary to secure the Obligations, would, in the good faith judgment of Hanover, result in adverse tax consequences to Hanover; provided, that 3 notwithstanding the foregoing, Hanover Cayman Limited and Production Operators Cayman Inc. shall be deemed to be Excluded Unqualified Subsidiaries. "Existing Credit Agreement": as defined in the Corporate Credit Agreement. "Final Maturity Date": December 29, 2006. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counter indemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by Hanover, as the case may be, in good faith. "Hanover": Hanover Compressor Company, a Delaware corporation. "Hanover Convertible Notes": senior unsecured convertible notes to be offered and issued by Hanover on or before the Corporate Credit Agreement Closing Date in an aggregate principal amount not to exceed $[150,000,000], which shall be unguaranteed and the terms and conditions of which shall be in form and substance reasonably satisfactory to the Co-Lead Arrangers. "HCLP": Hanover Compression Limited Partnership (formerly known as Hanover Compression Inc.), a Delaware corporation. "Holdings": Hanover Compressor Company, a Delaware corporation. "JPMorgan": J.P. Morgan Securities Inc. "Loan Documents": as defined in the Corporate Credit Agreement. 4 "Mortgaged Properties": the real properties listed on Schedule 1.1B of the Guarantee, as to which the Administrative Agent for the benefit of the Lenders shall be granted a Lien pursuant to the Mortgages. "Mortgages": each of the mortgages and deeds of trust made by any Guarantor in favor of, or for the benefit of, the Administrative Agent for the benefit of the Lenders, substantially in the form of Exhibit F to the Corporate Credit Agreement (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage or deed of trust is to be recorded), as the same may be amended, supplemented or otherwise modified from time to time. "1999 Synthetic Lease": the Lease dated as of June 15, 1999 (as amended, supplemented or otherwise modified from time to time), between Hanover Equipment Trust 1999A, as lessor, and HCLP, as lessee. "Net Unqualified Subsidiary Investments": Investments in Unqualified Subsidiaries (whether existing, newly formed, or acquired) made by Hanover and its Qualified Subsidiaries pursuant to the provisions of Section 11.10(e) of the Guarantee. In order to calculate the "net" amount of a particular Net Unqualified Subsidiary Investment that is to be included in the amounts in the second column of the table set forth in such Section 11.10(e), the following formula shall be used: (a) the Dollar amount of cash and Cash Equivalents plus the net book value (in Dollars) of other assets that, in each case, constitute such Net Unqualified Subsidiary Investment, less, to the extent that the result of such deduction would be zero or a positive number, (b) the net amount (in Dollars, with the value of property other than cash and Cash Equivalents being the net book value thereof) of the dividends, distributions, loan repayments and other amounts (representing a return on capital) received by Hanover and its Qualified Subsidiaries from Unqualified Subsidiaries for the time period from the Corporate Credit Agreement Closing Date through the date of which such calculation is made, provided that the amounts deducted pursuant to the foregoing clause (b) shall not include any amounts that have previously been deducted in calculating the "net" amount of any other Net Unqualified Subsidiary Investment. "Non-Excluded Taxes": as defined in subsection 2.14(a). "Non-U.S. Lender": as defined in Section 2.14(d) of the Credit Agreement. "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, the Credit Agreement or any other Credit Document. "Performance Letter of Credit": any Letter of Credit issued to support contractual obligations for supply, service or construction contracts, including, but not limited to, bid, performance, advance payment, warranty, retention, availability and defects liability obligations. "Permitted Credit Support": a guarantee or other credit support provided by Hanover or any of its Qualified Subsidiaries as to the Non-Recourse Indebtedness of Unqualified Subsidiaries to the extent that (x) such guarantee or other credit support is included as "Indebtedness" of Hanover or such Qualified Subsidiary for the purposes of Section 11.2 of the Guarantee or as "Guarantee Obligations" of Hanover or such Qualified Subsidiary for the purposes of Section 11.4 of the Guarantee, and (y) the creation, incurrence and existence of such "Indebtedness" or 5 "Guarantee Obligations" by Hanover or such Qualified Subsidiary is permitted by the provisions of Section 11.2 or Section 11.4 of the Guarantee, respectively. "Permitted International Reorganization": a restructuring of Hanover's international operations pursuant to which (a) Hanover or one of its wholly-owned Subsidiaries may form one or more holding companies, which shall be organized under the laws of a jurisdiction outside of the United States, (b) the equity interests in existing Hanover's Unqualified Subsidiaries may be conveyed, sold or otherwise transferred to such newly-formed holding companies, and/or (c) certain existing intercompany debt of such Unqualified Subsidiaries may be converted to equity. "POC Acquisition": as defined in the Corporate Credit Agreement. "Pro Forma Balance Sheet": as defined in Section 9.1(a) of the Guarantee. "Refinancing Indebtedness": any Indebtedness that exists (with respect to any amendments, modifications or supplements thereof) or that is incurred to refund, refinance, replace, exchange, renew, repay, extend, modify, amend or supplement (including pursuant to any defeasance or discharge mechanism) (collectively, "refinance", "refinances" and "refinanced" shall have a correlative meaning) any other specified Indebtedness, including any Indebtedness that refinances Refinancing Indebtedness, provided, however, that: (i) if the Stated Maturity (as such term is hereinafter defined) of the Indebtedness being refinanced is earlier than the Final Maturity Date, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of the Indebtedness being refinanced is later than the Final Maturity Date, the Refinancing Indebtedness has a Stated Maturity of at least 91 days later than the Final Maturity Date; (ii) the Refinancing Indebtedness has an Average Life (as such term is hereinafter defined) as the time such Refinancing Indebtedness is incurred equal to or greater than the Average Life of the Indebtedness being refinanced; (iii) such Refinancing Indebtedness is incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced (plus, without duplication, any additional Indebtedness incurred to pay interest or premiums required by instruments governing such existing Indebtedness and fees incurred in connection therewith); (iv) if the Indebtedness being refinanced is subordinated in right of payment to any of the Obligations, such Refinancing Indebtedness is subordinated in right of payment to such Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness that is being refinanced; (v) after giving effect to the incurrence of such Refinancing Indebtedness, no Default or Event of Default would exist hereunder; 6 (vi) the obligor(s) of such Refinancing Indebtedness shall be no different than the obligors of the Indebtedness being refinanced provided, that notwithstanding the foregoing, Hanover shall be permitted to become the obligor of Refinancing Indebtedness in which HCLP or any of its Subsidiaries was the prior obligor; (vii) the terms and conditions of such Refinancing Indebtedness shall be no less favorable in any material respect than the terms and conditions of the Indebtedness being refinanced; and (viii) the security interest(s) granted in connection with such Refinancing Indebtedness, if any, shall not cover more collateral, in any material respect, than the security interest(s), if any, granted in connection with the Indebtedness being refinanced. As used in this definition the term "Stated Maturity" means, with respect to any Indebtedness, the date specified in the documents or instruments evidencing such Indebtedness as the fixed date on which the payment of principal of such Indebtedness is due and payable, including pursuant to any mandatory prepayment or redemption provision, but shall not include any contingent obligations to repay, prepay, redeem or repurchase any such principal prior to the date originally scheduled for the payment thereof. As used in this definition, the term "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (a) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness multiplied by the amount of such payment by (b) the sum of all such payments. "SEC": the Securities and Exchange Commission. "Securities Litigation Settlement": that certain settlement agreement, dated as of May 12, 2003, entered into by Hanover and the other parties thereto pursuant to which certain securities class action litigation and other litigation described therein is to be settled, together with any other documents executed by Hanover and/or any of its Subsidiaries in connection therewith so long as such documents do not result in a material increase of the obligations of Hanover and its Subsidiaries under the Securities Litigation Settlement. "Subsidiary Guarantor": as defined in the Corporate Credit Agreement. "Title Insurance Company": as defined in Section 6.2(k) of the Corporate Credit Agreement. "2003 Notes": the senior, unsecured notes to be offered and issued by Hanover on or before the Corporate Credit Agreement Closing Date in an aggregate principal amount not to exceed $275,000,000, which may be guaranteed on a subordinated basis by the Borrower and which shall be in form and substance satisfactory to the Co-Lead Arrangers, provided that any proceeds received from the issuance of the 2003 Notes in excess of $200,000,000 shall be used to prepay the 2000A Synthetic Lease and/or the 2000B Synthetic Lease. "2003 Notes Subordinated Guarantee": the guarantee of HCLP of the 2003 Notes, and any Refinancing Indebtedness in respect thereof; provided, that such guarantee shall be subordinated to HCLP's obligations under the Loan Documents in form and substance satisfactory to the Co-Lead Arrangers. 7 "Unrestricted Subsidiary": (i) any Subsidiary of HCLP that exists on the Corporate Credit Agreement Closing Date and is so designated as an Unrestricted Subsidiary by HCLP in writing to the Agent, (ii) any Subsidiary of HCLP that at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of HCLP, as provided below), and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of HCLP (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary if all of the following conditions apply and continue to apply following such designation: (a) neither HCLP nor any of its Subsidiaries (other than another Unrestricted Subsidiary) provides credit support for Indebtedness or other obligations of such Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness or obligations) except as permitted by Section 11.10 of the Guarantee and (b) the Investments by HCLP or the Restricted Subsidiaries in such Subsidiary made on or prior to the date of designation of such Subsidiary as an Unrestricted Subsidiary shall not violate the provisions described under Section 11.10 of the Guarantee and such Unrestricted Subsidiary is not party to any agreement, contract, arrangement or understanding at such time with HCLP or any other Subsidiary (other than another Unrestricted Subsidiary) of HCLP unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to HCLP or such other Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of HCLP or, in the event such condition is not satisfied, the value of such agreement, contract, arrangement or understanding to such Unrestricted Subsidiary shall be deemed an Investment. Any such designation by the Board of Directors shall be evidenced to the Agent by filing with the Agent a resolution of the Board of Directors of HCLP giving effect to such designation and an officer's certificate certifying that such designation complies with the foregoing conditions and any Investment by HCLP in such Unrestricted Subsidiary shall be deemed the making of an Investment on the date of designation in an amount equal to the greater of (1) the net book value of such Investment or (2) the fair market value of such Investment as determined in good faith by the Board of Directors (and evidenced by a resolution of the Board of Directors). The Board of Directors may designate any Unrestricted Subsidiary as a Subsidiary; provided (i) that, if such Unrestricted Subsidiary has any Indebtedness, immediately after giving effect to such designation, no Default or Event of Default would result, and (ii) that all Indebtedness of such Subsidiary shall be deemed to be incurred on the date such Unrestricted Subsidiary becomes a Subsidiary. Unrestricted Subsidiaries shall be deemed to be Affiliates of Hanover, HCLP and their Subsidiaries. Any Subsidiary of an Unrestricted Subsidiary shall also be deemed to be an Unrestricted Subsidiary. Any Subsidiary of Hanover that is not an Unrestricted Subsidiary shall be a "Restricted Subsidiary". As used in this definition, the term "Board of Directors" shall include any committees that the Board of Directors has authorized to deal with Unrestricted Subsidiaries. "Wells Fargo Credit Agreement": the Credit Agreement, dated as of September 23, 1997 (as amended, supplemented or otherwise modified from time to time), among Hanover and Wells Fargo Bank (Texas), National Association, together with any Refinancing Indebtedness incurred in respect thereof. "Wells Fargo Term Note": that certain Term Note, dated as of September 23, 1997, in the original principal amount of $5,000,000, executed by Hanover and payable to the order of Wells Fargo Bank (Texas), National Association, together with any Refinancing Indebtedness incurred in respect thereof. (b) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom the definitions of the following defined terms and substituting in place thereof the following new definitions: 8 "Consolidated EBITDA": for any period, with respect to any Person, the sum of, without duplication, (a) Consolidated Earnings Before Interest and Taxes for such Person for such period plus (b) all amounts attributable to depreciation and amortization, determined in accordance with GAAP (to the extent such amounts have been deducted in determining Consolidated Earnings Before Interest and Taxes for such period) plus (c) all amounts classified as extraordinary charges for such period (to the extent such amounts have been deducted in determining Consolidated Earnings Before Interest and Taxes for such period) plus (d) Designated Distributions (as such term is hereinafter defined) plus (e) any non-recurring non-cash expenses or losses (including, non-cash currency charges) (to the extent such amounts have been deducted in determining Consolidated Earnings Before Interest and Taxes for such period) plus (f) any non-recurring non-cash expenses or losses attributable to the Securities Litigation Settlement (to the extent such amounts have been deducted in determining Consolidated Earnings Before Interest and Taxes for such period), and minus (a) any increase in Consolidated Earnings Before Interest and Taxes to the extent that such increase is a result of the actions underlying the charges referred to in clause (e) above subsequent to the fiscal quarter in which the relevant non-cash expenses or losses were reflected as a charge in the statement of Consolidated Earnings Before Interest and Taxes, all as determined on a consolidated basis and (b) all amounts classified as extraordinary income for such period (to the extent such amounts have been included in determining Consolidated Earnings Before Interest and Taxes for such period); provided that, if during such period such Person shall have made a Material Acquisition, Consolidated EBITDA for such period shall be calculated after giving pro forma effect to such Material Acquisition as if such Material Acquisition had occurred on the first day of such period; provided further that, the foregoing proviso shall have effect only if the Agent has been furnished with unaudited, or, if available, audited, consolidated financial statements of the acquired property for such period, such financial statements to include the balance sheet and statements of income and cash flows reflecting the historical performance of the acquired property for such period to the extent applicable. As used in this definition, "Material Acquisition" means any acquisition of property or series of related acquisitions of property that (a) constitutes assets or constitutes all or substantially all of the equity interests of a Person and (b) involves the payment of consideration of at least $15,000,000. In calculating Consolidated EBITDA, the financial performance of Joint Ventures, Unrestricted Subsidiaries and Unqualified Subsidiaries that have any Non-Recourse Indebtedness outstanding shall be disregarded except as provided in clause (d) above, with respect to "Designated Distributions", which shall mean cash dividends and cash payments with respect to intercompany Indebtedness, in each case received by Hanover or any Restricted Subsidiary from any Joint Venture or from any Unrestricted Subsidiary or Unqualified Subsidiary that has any Non-Recourse Indebtedness outstanding (to the extent such amounts have been deducted in determining Consolidated Earnings Before Interest and Taxes for such period). "Consolidated Indebtedness": at a particular date, as to any Person, the sum of (without duplication) (a) all Indebtedness of such Person and its Subsidiaries determined on a consolidated basis in accordance with GAAP, excluding (i) Indebtedness in respect of Financing Leases, (ii) for purposes of Sections 11.1(b) and (c) of the Guarantee only, Non-Recourse Indebtedness and the Tranche B Balance Sheet Loans and (iii) intercompany Indebtedness payable by HCLP and/or any of its Subsidiaries to Havover, plus (b) (i) Guarantee Obligations of such Person and its Subsidiaries in respect of Indebtedness of any other Person (other than in respect of the Tranche B Balance Sheet Loans) and (ii) the Equipment Lease Tranche A Loans. "Consolidated Interest Expense": for any period, with respect to any Person, the amount which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption (including, without limitation, imputed interest included in Financing Lease payments) on a consolidated income statement of such Person and its Subsidiaries for such 9 period, plus, (a) to the extent not so included, payments by such Person and its Subsidiaries under the Equipment Leases attributable to (i) interest payments under the Equipment Lease Tranche A Loans and Equipment Lease Tranche B Loans and (ii) the yield to the Investors in connection with the Equipment Lease Transactions and minus, (b) to the extent so included (i) interest on Non-Recourse Indebtedness (to the extent that the same would otherwise be included in Consolidated Interest Expense) and (ii) for purposes of calculating the ratio in Section 11.1(d) of the Guarantee only, payment in kind of interest on each of the Hanover Zero Coupon Subordinated Notes, the Cayman Note, the Note (as such term is defined in the Securities Litigation Settlement) and the TIDES or the TIDES Debentures and any Refinancing Indebtedness incurred in respect thereof. "Consolidated Net Income": for any period as to any Person, the consolidated net income (or loss) of such Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, provided that for purposes of determining Consolidated Net Income, (a) payments under Equipment Leases attributable to (i) Equipment Lease Tranche A Loans and Equipment Lease Tranche B Loans and (ii) the yield to the Investors in connection with the Equipment Lease Transactions shall, in each case, be considered interest expense and (b) the effects of marking to market any portion of the expenses attributable to the Securities Litigation Settlement shall be disregarded. "Equipment Lease Credit Agreements": (i) the Credit Agreement dated as of March 13, 2000 (as amended, supplemented or otherwise modified from time to time), among Hanover Equipment Trust 2000A, as borrower, the several lenders from time to time parties thereto, Industrial Bank of Japan, LTD., as syndication agent, The Bank of Nova Scotia, as documentation agent and The Chase Manhattan Bank, as agent, (ii) the Credit Agreement dated as of October 27, 2000 (as amended, supplemented or otherwise modified from time to time), among Hanover Equipment Trust 2000B, as borrower, the several lenders from time to time parties thereto, National Westminster Bank PLC, as managing agent, Citibank, N.A., Credit Suisse First Boston and The Industrial Bank of Japan, Ltd., as co-agents and The Chase Manhattan Bank, as agent, (iii) the 2001A Equipment Lease Securities, (iv) the 2001B Equipment Lease Securities, (v) the Indenture, dated as of August 30, 2001, among Hanover Equipment Trust 2001A, the guarantors party thereto and the initial purchasers named therein, (vi) the Indenture, dated as of August 30, 2001, among Hanover Equipment Trust 2001B, the guarantors party thereto and Wilmington Trust FSB, as indenture trustee and (vii) any Credit Agreement or Indenture, in connection with and dated as of the date of an Additional Participation Agreement (as amended, supplemented or otherwise modified from time to time), among a Delaware business trust, as borrower, and the several lenders from time to time parties thereto. "Equipment Lease Participation Agreements": (i) the Participation Agreement dated March 13, 2000 (as amended, supplemented or otherwise modified from time to time, the "2000A Participation Agreement"), among HCLP, Hanover Equipment Trust 2000A, First Union National Bank and Scotiabanc Inc., as investors, Industrial Bank of Japan, LTD., as syndication agent, The Bank of Nova Scotia, as documentation agent, The Chase Manhattan Bank, as agent, and the lenders parties thereto, (ii) the Participation Agreement dated as of October 27, 2000 (as amended, supplemented or otherwise modified from time to time, the "2000B Participation Agreement"), among HCLP, Hanover Equipment Trust 2000B, Bank Hapoalim B.M. and FBTC Leasing Corp., as investors, The Chase Manhattan Bank, as agent, and the lenders parties thereto, (iii) the Participation Agreement dated as of August 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "2001A Participation Agreement"), among HCLP, Hanover Equipment Trust 2001A, General Electric Capital Corporation as investor, The Chase Manhattan Bank, as agent, and the lenders parties thereto, (iv) the Participation Agreement dated 10 as of August 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "2001B Participation Agreement"), among HCLP, Hanover Equipment Trust 2001B, General Electric Capital Corporation as investor, The Chase Manhattan Bank, as agent, and the lenders parties thereto. "Equipment Lease Tranche A Loans": the collective reference to: (a) for the 2000A Synthetic Lease and the 2000B Synthetic Lease, the loans to be made pursuant to each Equipment Lease Credit Agreement and identified as the "Tranche A Loans" in Schedule 1.1 of each of the Equipment Lease Credit Agreements, (b) for the 2001A Synthetic Lease, the Tranche A Portion of the 2001A Equipment Lease Transaction, (c) for the 2001B Synthetic Lease, the Tranche A Portion of the 2001B Equipment Lease Transaction and (d) for any Additional Lease, either (i) the loans to be made pursuant to such Equipment Lease Credit Agreement and identified as the "Tranche A Loans" in Schedule 1.1 of such Equipment Lease Credit Agreement or (ii) the "Tranche A Portion" of such Equipment Lease Transaction. "Equipment Lease Tranche B Loans": the collective reference to: (a) for the 2000A Synthetic Lease and the 2000B Synthetic Lease, the loans to be made pursuant to each Equipment Lease Credit Agreement and identified as the "Tranche B Loans" in Schedule 1.1 of each of the Equipment Lease Credit Agreements, (b) for the 2001A Synthetic Lease, the Tranche B portion of the 2001A Equipment Lease Securities, (c) for the 2001B Synthetic Lease, the Tranche B portion of the 2001B Equipment Lease Securities and (d) for any Additional Lease, either (i) the loans to be made pursuant to such Equipment Lease Credit Agreement and identified as the "Tranche B Loans" in Schedule 1.1 of such Equipment Lease Credit Agreement or (ii) the "Tranche B Portion" of such Equipment Lease Transaction. "Equipment Leases": (i) the Lease dated as of March 13, 2000 (as amended, supplemented or otherwise modified from time to time), between Hanover Equipment Trust 2000A, as lessor, and HCLP, as lessee (the "2000A Synthetic Lease"), (ii) the Lease dated as of October 27, 2000 (as amended, supplemented or otherwise modified from time to time), between Hanover Equipment Trust 2000B, as lessor, and HCLP, as lessee (the "2000B Synthetic Lease"), (iii) the Lease dated as of August 31, 2001 (as amended, supplemented or otherwise modified from time to time), between Hanover Equipment Trust 2001A, as lessor, and HCLP, as lessee (the "2001A Synthetic Lease"), (iv) the Lease dated as of August 31, 2001 (as amended, supplemented or otherwise modified from time to time), between Hanover Equipment Trust 2001B, as lessor, and HCLP, as lessee (the "2001B Synthetic Lease") and (v) any Lease in connection with and dated as of the date of any Additional Participation Agreement (as amended, supplemented or otherwise modified from time to time), between a Delaware business trust, as lessor, and HCLP, as lessee (the "Additional Lease"). "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business and payable in accordance with customary trade practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Financing Leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien (other than any Lien permitted under Section 11.3 of the Guarantee) on any property owned by such Person even though it has not assumed or otherwise become liable for the payment thereof, provided that all obligations of such Person with respect to Equipment Lease Tranche A Loans shall be considered Indebtedness of such Person and (e) the aggregate drawable amount of letters of credit issued for the account of such Person provided, that solely for the purposes of Section 11.1 of the Guarantee and calculating the Pricing Grid, the definition of "Indebtedness" 11 shall not include Performance Letters of Credit. For purposes of clarification, the obligations with respect to the Equipment Leases shall not be deemed to constitute Indebtedness under the preceding clause (d) solely by virtue of the grant by HCLP thereunder of a Lien on its interest in the Equipment subject to such Equipment Lease to secure HCLP's and the Guarantor's obligations in connection therewith. "Non-Recourse Indebtedness": (i) Indebtedness of Unqualified Subsidiaries (a) as to which neither Hanover nor any of its Qualified Subsidiaries (x) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) other than Permitted Credit Support, or (y) other than with respect to Permitted Credit Support, is directly or indirectly liable (as guarantor or otherwise) and (b) the explicit terms of which provide that, other than with respect to Permitted Credit Support, there is no recourse against any of the assets of Hanover or its Qualified Subsidiaries (other than the Capital Stock of an Unqualified Subsidiary) or that, other than with respect to Permitted Credit Support, recourse is limited to assets which do not include the assets of Hanover or its Qualified Subsidiaries (other than the Capital Stock of an Unqualified Subsidiary) or (ii) Indebtedness of Unqualified Subsidiaries incurred solely to finance the acquisition or construction of specific property that is acquired after the Corporate Credit Agreement Closing Date; provided, that payment of such Indebtedness is expressly stated to be recourse solely to such specified property and the proceeds thereof and such Indebtedness is incurred contemporaneously with the acquisition or construction of such property. "Permitted Business Acquisition": the formation of a new Qualified Subsidiary or any acquisition of all or substantially all the assets of, or 50% or more of the shares of capital stock, partnership interests, joint venture interests, limited liability company interests or other similar equity interests in, or the acquisition of any compression and/or oil and gas production equipment assets of, a Person or division or line of business of a Person (or any subsequent investment made in a Person previously acquired in a Permitted Business Acquisition), if immediately after giving effect thereto: (a) no Default or Event of Default shall have occurred and be continuing or would result therefrom, (b) all transactions related thereto shall be consummated in accordance with applicable laws, (c) such acquired or newly formed corporation, partnership, association or other business entity shall be a Qualified Subsidiary and all actions required to be taken, if any, with respect to such acquired or newly formed Qualified Subsidiary under the Credit Documents shall have been taken, (d)(i) Hanover shall be in compliance, on a pro forma basis after giving effect to such acquisition or formation, with the covenants contained in Section 11.1 of the Guarantee computed as at the last day of the fiscal quarter most recently ended prior to delivery of the certificate required pursuant to this clause (i), and Hanover shall have delivered to the Agent an officers' certificate to such effect concurrently with the delivery of each certificate of a Responsible Officer pursuant to Section 10.2(b) of the Guarantee, together with all relevant financial information for such Person or assets and (ii) any acquired or newly formed Qualified Subsidiary shall not be liable for any Indebtedness or Guarantee Obligations (except for Indebtedness and Guarantee Obligations permitted by Sections 11.2 and 11.4 of the Guarantee), and (e) any acquired or newly formed Qualified Subsidiary (including Subsidiaries thereof) shall not have (except for Indebtedness and Guarantee Obligations permitted by Sections 11.2 and 11.4 of the Guarantee) any material liabilities (contingent or otherwise), including, without limitation, liabilities under Environmental Laws and liabilities with respect to any Plan, and HCLP shall have delivered to the Agent, concurrently with the delivery of each certificate of a Responsible Officer pursuant to Section 10.2(b) of the Guarantee, a certificate, signed by a Responsible Officer, that to the best of such officer's knowledge, no such material liabilities exist. Notwithstanding the foregoing, Investments by Unqualified Subsidiaries of Hanover in Qualified Subsidiaries of Hanover (whether existing, newly formed or acquired) shall be governed by 12 Section 11.10(f) of the Guarantee. The Lenders acknowledge that (a) the equity investments and advances listed on Schedule 11.10B to the Guarantee constitute Permitted Business Acquisitions, and (b) to the extent that any such equity investments or advances listed on such Schedule 11.10B to the Guarantee constitute Indebtedness, the creation, incurrence, assumption or sufferance to exist of such Indebtedness is in compliance with the provisions of Section 11.2 of the Guarantee. "Reportable Event": any of the events set forth in Section 4043(l) of ERISA, other than those events as to which the thirty day notice period is waived by the PBGC. "Subordinated Debt": as to any Person, any unsecured Indebtedness (including, with respect to HCLP, the 2001A Lease Guarantee, the 2001B Lease Guarantee and the 2003 Notes Subordinated Guarantee, and, with respect to Hanover, the TIDES Debentures and the Hanover Zero Coupon Subordinated Notes) the terms of which provide that such Indebtedness is subordinate and junior in right of payment to the payment of all obligations and liabilities of such Person to the Administrative Agent and the Lenders hereunder; provided, that prior to an Event of Default, Hanover and any Subsidiary may make regularly scheduled interest payments in respect of such Indebtedness. (c) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom all references to "HCC" and substituting "HCLP" in its place. (d) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom all references to "Holdings" and substituting "Hanover" in its place. (e) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom the definition of "Adjusted EBITDA Companies" and adding the following in its place (and all references in the Credit Documents to "Adjusted EBITDA Companies" shall be to "Adjusted EBITDAR Companies"): "Adjusted EBITDAR Companies": HCLP and each of its wholly-owned Subsidiaries which (i) is organized under a jurisdiction of the United States, Canada, the United Kingdom and any other country approved by the Required Lenders and (ii) has at least 90% of its assets located in any such jurisdiction or which derives at least 90% of its revenues from such jurisdiction, in each case, at the time the applicable calculation is being made for purposes of Section 11.1 of the Guarantee. (f) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom the definition of "Consolidated Adjusted EBIDTA" and adding the following in its place (and all references in the Credit Documents to "Consolidated Adjusted EBITDA" shall be to "Consolidated Adjusted EBITDAR"): "Consolidated Adjusted EBITDAR": for any period, the sum of Consolidated EBITDAR for the Adjusted EBITDAR Companies. (g) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom the definition of "Current Ratio" and the definition of "Consolidated Capitalization." (h) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom the definition of "Equipment Guarantees" and substituting the following in its place (and all references in the Credit Documents to "Equipment Guarantees" shall be to "Equipment Lease Guarantees"): 13 "Equipment Lease Guarantees": (i) the Guarantee dated as of March 13, 2000 (as amended, supplemented or otherwise modified from time to time, the "2000A Lease Guarantee"), made by Hanover, HCLP and certain of their subsidiaries listed on the signature pages thereto, in favor of Hanover Equipment Trust 2000A, The Chase Manhattan Bank, as agent, and certain lenders and investors, (ii) the Guarantee dated as of October 27, 2000 (as amended, supplemented or otherwise modified from time to time, the "2000B Lease Guarantee"), made by Hanover, HCLP and certain of their subsidiaries listed on the signature pages thereto, in favor of Hanover Equipment Trust 2000B, The Chase Manhattan Bank, as agent, and certain lenders and investors, (iii) the Guarantee dated as of August 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "2001A Lease Guarantee"), made by Hanover, HCLP and certain of their subsidiaries listed on the signature pages thereto, in favor of Hanover Equipment Trust 2001A, The Chase Manhattan Bank, as agent, and certain lenders and investors, (iv) the Guarantee dated as of August 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "2001B Lease Guarantee"), made by Hanover, HCLP and certain of their subsidiaries listed on the signature pages thereto, in favor of Hanover Equipment Trust 2001B, The Chase Manhattan Bank, as agent, and certain lenders and investors and (v) any Guarantee in connection with and dated as of the date of an Additional Participation Agreement (as amended, supplemented or otherwise modified from time to time), to be made by Hanover, HCLP and certain of their subsidiaries that will be listed on the signature pages thereto, in favor of a Delaware business trust, the agent and certain Lenders and investors. (i) Annex A of each of the Participation Agreements is hereby amended by deleting therefrom the definition of "Holdings Subordinated Notes" and substituting the following in its place (and all references in the Credit Documents to "Holdings Subordinated Notes" shall be to "Hanover Zero Coupon Subordinated Notes"): "Hanover Zero Coupon Subordinated Notes": zero coupon subordinated notes to be offered and issued by Hanover on or before the Corporate Credit Agreement Closing Date in an aggregate principal amount not to exceed $262,621,810, which shall be unguaranteed and the terms and conditions of which shall be in form and substance reasonably satisfactory to the Co-Lead Arrangers. 2. Amendments to Section 2 of each of the Synthetic Credit Agreements. (a) Subsection 2.12 of each of the Synthetic Credit Agreements is hereby amended by deleting such Section in its entirety and inserting the following in its place: 2.12 Requirements of Law. (a) In the event that any change in any Requirement of Law as in existence on the date hereof or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for taxes covered by Section 2.14 and changes in the rate of tax on the overall net income of such Lender or tax imposed in lieu of net income taxes); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other 14 acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, HCLP shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify HCLP, through the Agent, by delivery of a certificate setting forth the amounts due and a description of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Agent, to HCLP shall be conclusive in the absence of manifest error. (b) In the event that any Lender shall have determined that the adoption after the date hereof of or any change in any Requirement of Law as in existence on the date hereof regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to HCLP (with a copy to the Agent) of a written request therefor, HCLP shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction. (c) Notwithstanding anything to the contrary in this Section, HCLP shall not be required to compensate a Lender pursuant to this Section for any amounts incurred more than nine months prior to the date that such Lender notifies HCLP of such Lender's intention to claim compensation therefor; provided that, if the circumstances giving rise to such claim have a retroactive effect, then such nine-month period shall be extended to include the period of such retroactive effect. The obligations of HCLP pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Subsection 2.13 of each of the Synthetic Credit Agreements is hereby amended by deleting such Section in its entirety and inserting the following in its place: 2.13 Indemnity. HCLP agrees to indemnify each Lender and to hold each Lender harmless from any reasonable loss or expenses which such Lender may sustain or incur as a consequence of (a) default by HCLP in payment when due of the principal amount of or interest on any Eurodollar Loan, (b) default by HCLP in making a borrowing of, conversion into or continuation of Eurodollar Loans after HCLP has given a notice requesting the same in accordance with the provisions of this Agreement, (c) default by HCLP in making any prepayment after HCLP has given a notice thereof in accordance with the provisions of this Agreement or (d) conversion of or the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, 15 in each case, any such loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to HCLP by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (c) Subsection 2.14 of each of the Synthetic Credit Agreements is hereby amended by deleting such Section in its entirety and inserting the following in its place: 2.14 Taxes. (a) All payments made by HCLP under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Agent or any Lender as a result of a present or former connection between the Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Credit Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld from any amounts payable to the Agent or any Lender hereunder, the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that HCLP shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes imposed on amounts payable to such Lender at the time such Lender becomes a party to this Agreement, except to the extent that such Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from HCLP with respect to such Non-Excluded Taxes pursuant to this paragraph. (b) In addition, HCLP shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by HCLP, as promptly as possible thereafter HCLP shall send to the Agent for its own account or for the account of the relevant Lender, as the case may be, a certified copy of an original official receipt received by HCLP showing payment thereof. If HCLP fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, HCLP shall indemnify the Agent and 16 the Lenders for any incremental taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure unless such failure was caused by the gross negligence or willful misconduct of the Agent or such Lender. (d) Each Lender (or Transferee) that is not a "U.S. Person" as defined in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to HCLP and the Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a statement substantially in the form of Exhibit H and a Form W-8BEN, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by HCLP under this Agreement and the other Credit Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify HCLP at any time it determines that it is no longer in a position to provide any previously delivered certificate to HCLP (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. (e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which HCLP is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to HCLP (with a copy to the Agent), at the time or times prescribed by applicable law or reasonably requested by HCLP, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. (f) If the Agent or any Lender determines, in its sole discretion, that it has received a refund of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by HCLP or with respect to which HCLP has paid additional amounts pursuant to this Section 2.14, it shall pay over such refund to HCLP (but only to the extent of indemnity payments made, or additional amounts paid, by HCLP under this Section 2.14 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that HCLP, upon the request of the Agent or such Lender, agrees to repay the amount paid over to HCLP (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Agent or such Lender in the event the Agent or such Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to HCLP or any other Person. (g) The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 17 (d) Subsection 2.16 of each of the Synthetic Credit Agreements is hereby amended by adding the following Section 2.16: 2.16 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.12 or 2.14(a) with respect to such Lender, it will, if requested by HCLP, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of HCLP or the rights of any Lender pursuant to Section 2.12 or 2.14(a). 3. Amendments to Section 6 of each of the Synthetic Credit Agreements. (a) Subsection 6.1(m) of each of the Synthetic Credit Agreements is hereby amended by deleting such Section in its entirety and inserting the following in its place: (m) (i) Any Person shall engage in any non-exempt "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien shall arise on the assets of HCLP or any Commonly Controlled Entity in favor of PBGC or a Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) HCLP or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (b) Subsection 6.1(p) of each of the Synthetic Credit Agreements is hereby amended by inserting the word "or" at the end thereof. (c) Section 6.1 is further amended by adding the following new Section after Section 6.1(p) thereof: (q) (i) A "change of control" (however denominated) with respect to Hanover or HCLP shall have occurred under, or for purposes of, the 2001A Equipment Lease Securities, the 2001B Equipment Lease Securities, the Hanover Convertible Notes, the 2003 Notes, the 2008 Notes (or any refinancing thereof) or the Hanover Zero Coupon Subordinated Notes; (ii) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 35% of the outstanding common stock of Hanover; or (iii) Hanover shall cease to own and control, beneficially, 100% of each class of outstanding Capital Stock of HCLP free and clear of all Liens (except Liens created by the Guarantee and Collateral Agreement); 18 4. Amendments to Section 1 of each of the Synthetic Guarantees. (a) Section 1(b) of each Synthetic Guarantee is hereby amended by deleting therefrom the following definitions: "Consolidated EBITDA", "Consolidated Senior Indebtedness", "Equipment Lease Credit Agreements", "Equipment Lease Participation Agreements", "Equipment Leases", "New Convertible Notes", "POC Acquisition", "2008 Notes" and "Unrestricted Subsidiary". Each such term shall have, if applicable, the meaning set forth in Annex A to the relevant Participation Agreement. (b) Section 1(b) of each Synthetic Guarantee is hereby amended by deleting therefrom the following definitions: "Adjusted EBITDAR Companies" and "Equipment Guarantees". All references in each Guarantee to "Adjusted EBITDAR Companies" and "Equipment Guarantees" shall be to "Adjusted EBITDAR Companies" and "Equipment Lease Guarantees", respectively, each as defined in Annex A to the relevant Participation Agreement. 5. Amendments to Section 9 of each of the Synthetic Guarantees. (a) Section 9.1(a) of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: (a) The unaudited pro forma consolidated balance sheet of Hanover and its consolidated Subsidiaries as at September 30, 2003 (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the Loans to be made and the 2003 Notes and the Hanover Convertible Notes to be issued on the Corporate Credit Agreement Closing Date and the use of proceeds thereof, (ii) the termination of the 1999 Synthetic Lease and the Existing Credit Agreement and (iii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to Hanover as of the date of delivery thereof, and presents fairly in all material respects on a pro forma basis the estimated financial position of Hanover and its consolidated Subsidiaries as at September 30, 2003, assuming that the events specified in the preceding sentence had actually occurred at such date. (b) Section 9.1(b) of each Synthetic Guarantee is hereby amended by deleting therefrom all references to "three-month period" and substituting "nine-month period" in its place. (c) Section 9.3 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.3 Corporate Existence; Compliance with Law. Each Guarantor (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified or (with respect to any Guarantor other than Hanover and HCLP) in good standing would not reasonably be expected to have a Material Adverse Effect, and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. (d) Section 9.8 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 19 9.8 Ownership of Property; Liens; Leases of Equipment. Each of the Guarantors has good record and indefeasible title in fee simple (except for exceptions to title as will not in the aggregate materially interfere with the present or contemplated use of the property affected thereby) to, or a valid leasehold interest in, all its real property, and good title to all its other property, and none of such property is subject to any Lien except as permitted by Section 11.3. As used herein, Equipment or Inventory leased by a Guarantor under a Financing Lease shall be deemed "owned" by such Guarantor. (e) Section 9.10 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.10 Taxes. Each of the Guarantors has filed or caused to be filed all tax returns which, to the knowledge of Hanover and HCLP, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of any of the Guarantors, as the case may be); no tax Lien has been filed against the property of any Guarantor, and, to the knowledge of Hanover and HCLP, no claim is being asserted, with respect to any such tax, fee or other charge, except, in each case, for Governmental Authorities outside of the United States, Canada or the European Union, where the failure to file or cause to be filed such tax returns, the failure to pay such taxes, assessments, fees or other charges, the existence of such tax Liens, or the assertion of such claims would not reasonably be expected to result in a Material Adverse Effect. (f) Section 9.12 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.12 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred and no Lien in favor of the PBGC or a Plan has arisen during the five-year period prior to the date on which this representation is deemed made. The present value of all accrued benefits under each Single Employer Plan maintained by HCLP, or any Commonly Controlled Entity (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither HCLP nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither HCLP nor any Commonly Controlled Entity would become subject to any material liability under ERISA if HCLP or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of HCLP and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by a material amount. 20 (g) Section 9.14 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.14 Subsidiaries. Immediately after giving effect to the POC Acquisition, Hanover has no Subsidiaries other than as set forth on Schedule 9.14. Except if a Guarantor, other than cash or Cash Equivalents, substantially all tangible assets owned by any Unqualified Subsidiary as of the date hereof are located within jurisdictions other than the United States of America or any territory thereof. (h) Section 9.15 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.15 Environmental Matters. Each of the representations and warranties set forth in paragraphs (a) through (e) of this Section is true and correct with respect to each parcel of real property owned or operated by any of the Guarantors (the "Properties"), except to the extent that the facts and circumstances giving rise to any such failure to be so true and correct would not reasonably be expected to have a Material Adverse Effect: (a) Except as set forth on Schedule 9.15, the Properties do not contain, and have not previously contained, in, on, or under, including, without limitation, the soil and groundwater thereunder, any Hazardous Substances in concentrations which violate Environmental Laws. (b) Except as set forth on Schedule 9.15, the Properties and all operations and facilities at the Properties are in compliance with all Environmental Laws, and there is no Hazardous Substances contamination or violation of any Environmental Law which would reasonably be expected to interfere with the continued operation of any of the Properties or impair the fair saleable value of any thereof. (c) Except as set forth on Schedule 9.15, none of the Guarantors has received any complaint, notice of violation, alleged violation, investigation or advisory action or of potential liability or of potential responsibility regarding environmental protection matters or environmental permit compliance with regard to the Properties which has not been resolved, nor is HCLP aware that any Governmental Authority is contemplating delivering to any Guarantor any such notice. (d) Hazardous Substances have not been generated, treated, stored, disposed of, at, on or under any of the Properties in concentrations that violate Environmental Laws, nor have any Hazardous Substances been transferred to any other location, in violation of any Environmental Laws from the Properties or as a result of the sale or lease of any equipment or inventory of any Guarantor. (e) There are no governmental, administrative actions or judicial proceedings pending or contemplated under any Environmental Laws to which any Guarantor is or to HCLP's knowledge will be named as a party with respect to the Properties, nor to HCLP's knowledge are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any of the Properties. 21 (i) Section 9.16 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.16 Accuracy and Completeness of Information. The factual statements contained in the Credit Documents and each other agreement, instrument, certificate and document related thereto and any other certificates or documents furnished or to be furnished to the Agent or the Lenders by any Guarantor from time to time in connection with this Agreement (in any case excluding any of the financial statements referred to in Section 9.1(a) hereof), taken as a whole, and taking into consideration all corrections or substituted documents, do not and will not, as of the date when made, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which the same were made, all except as otherwise qualified herein; provided, that any financial information with respect to Hanover's or HCLP's projections furnished to the Agent and/or the Lenders were prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed by Hanover or Hanover (as the case may be) to be reasonable in all material respects at the time made. (j) Section 9.17 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.17 Senior Indebtedness. The obligations of Hanover hereunder constitute "Senior Indebtedness" or "Senior Debt" under the (i) if applicable, terms of the Hanover Zero Coupon Subordinated Notes, (ii) if applicable, the documentation for the 2001A Equipment Lease Transaction and (iii) if applicable, the documentation for the 2001B Equipment Lease Transaction. The Obligations of HCLP constitute "Senior Indebtedness" or "Guarantor Senior Indebtedness" (i) if applicable, under the documentation for the 2001A Equipment Lease Transaction and (ii) if applicable, under the documentation for the 2001B Equipment Lease Transaction. The obligations of each Subsidiary under the Guarantees constitute "Guarantor Senior Indebtedness" under the documentation relating to the 2001A Equipment Lease Transaction (if applicable) and to the 2001B Equipment Lease Transaction (if applicable). From and after the date the 2003 Notes are issued, the obligations of HCLP under the Guarantees will constitute "Guarantor Senior Indebtedness" under the 2003 Notes Subordinated Guarantee. (k) Section 9.18 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 9.18 Security Documents. (a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Administrative Agent, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements and other filings specified on Schedule 9.18(a) in appropriate form are filed in the offices specified on such Schedule 9.18 (a), the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Guarantors in such Collateral and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement) to the extent that the aforementioned Lien on the Collateral can be perfected through the filing of UCC financing statements or through the delivery of Pledged Stock and Pledged Notes, in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Stock and Pledged Notes, Liens permitted by Section 11.3). 22 (b) Each of the Mortgages is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 9.18(b), each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Guarantors in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person (except as permitted by such Mortgage). Schedule 1.1B lists, as of the Corporate Credit Agreement Closing Date, each parcel of owned real property and each leasehold interest in real property located in the United States and held by Hanover or any of its Subsidiaries that has a value, in the reasonable opinion of HCLP, in excess of $1,000,000 provided that no Mortgage will be taken on each of (i) the 825 South Loop West, Houston, Texas property or (ii) the 11250 Tanner Road, Houston, Texas property, unless such property is not disposed of within one year of the Corporate Credit Agreement Closing Date. (l) Section 9 is further amended by adding the following new Section at the end thereof: 9.19 Regulation H. No Mortgage encumbers improved real property that is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968. (m) Section 9 is further amended by (i) substituting any reference to "December 31, 1999" with "December 31, 2001", (ii) substituting any reference to "December 31, 2000" with "December 31, 2002" and (iii) substituting any reference to "September 30, 2001" with "September 30, 2003". 6. Amendments to Section 10 of each of the Synthetic Guarantees. (a) Subsection 10.1 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 10.1 Financial Statements. Furnish to each Lender and each of the Investors: (a) as soon as available for distribution to shareholders and creditors generally, but in any event within 90 days (provided that, to the extent an extension is granted by the SEC, up to 15 additional days may be taken) after the end of each fiscal year of Hanover, a copy of the consolidated balance sheet of Hanover and its consolidated Subsidiaries and the related consolidating balance sheet schedule each as at the end of such year and the related consolidated statement of income of Hanover and consolidating schedule of income and consolidated statement of owner's equity and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year (provided, that such consolidating statements shall not include statements of owner's equity or cash flows and will not set forth in comparative form the figures for the previous year but will include a column for the consolidated balance sheet and consolidated statement of income of HCLP and its subsidiaries), the consolidated financial statements of Hanover shall be reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by PricewaterhouseCoopers or other independent certified public accountants of nationally recognized standing not unacceptable to the Required Lenders; and (b) as soon as available, but in any event not later than 45 days (provided that, to the extent an extension is granted by the SEC, up to 5 additional days may be taken) after the end of each of the first three quarterly periods of each fiscal year of 23 Hanover, the unaudited consolidated balance sheet of Hanover and its consolidated Subsidiaries and the related consolidating balance sheet schedule of Hanover and its Subsidiaries, each as at the end of such quarter, and the related unaudited consolidated statements of income and cash flows of Hanover and its consolidated Subsidiaries and the related consolidating schedule of income and consolidated cash flows of Hanover and its Subsidiaries, for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the corresponding period of the previous year (provided, that such consolidating statements shall not include statements of cash flows and will not set forth in comparative form the figures for the previous year but will include a column for the consolidated balance sheet and consolidated statement of income of HCLP and its subsidiaries), certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of Hanover and its consolidated Subsidiaries or the consolidated financial statements of HCLP and its Subsidiaries, as applicable, (subject to normal year-end audit adjustments), and setting forth in the consolidated balance sheet, statement of income or cash flows a comparative of the figures for such periods as shown on the consolidated budgets of Hanover for such year; all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). (b) Subsection 10.2(c) of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: (c) not later than 45 days (provided that, to the extent an extension is granted by the SEC, up to 5 additional days may be taken) following the end of each fiscal year of Hanover, a copy of the projections by Hanover of the operating budget and cash flow budget of Hanover and its Subsidiaries for the succeeding fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on the basis of reasonable assumptions and that such Officer has no reason to believe they are incorrect or misleading in any material respect; (c) Subsection 10.2(e) of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: (e) within 45 days (provided that, to the extent an extension is granted by the SEC, up to 5 additional days may be taken) after the end of each quarter in each fiscal year of Hanover, a certificate of the principal financial officer of Hanover showing both the Applicable Margin for the next quarter and the detailed computations necessary to calculate the Applicable Margin (an "Applicable Margin Certificate") and setting forth the aggregate drawable amount of outstanding Letters of Credit issued under the Corporate Credit Agreement and the aggregate drawable amount of other letters of credit issued for the account of HCLP or its Subsidiaries, in each case as of the last day of the immediately preceding quarter; and (d) Subsection 10.2(f) of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: (f) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 24 (e) Subsection 10.2(g) of each of the Synthetic Guarantees is hereby amended by deleting such clause in its entirety. (f) Subsection 10.3 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 10.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of Hanover or any Subsidiary of Hanover, as the case may be. (g) Subsection 10.4 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 10.4 Conduct of Business and Maintenance of Existence. Continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, privileges and franchises necessary or desirable in the normal conduct of its business except as otherwise permitted pursuant to Section 11.5; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. (h) Subsection 10.5 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 10.5 Maintenance of Property; Insurance. (a) Keep and maintain all property material to the conduct of its business in accordance with prudent industry practice in all material respects, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. (i) Subsection 10.7 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 10.7 Notices. Promptly give notice to the Investors, Agent and each Lender of: (a) the occurrence of any Default or Event of Default of which any Responsible Officer of Hanover or HCLP has actual knowledge; (b) any (i) default or event of default by Hanover or any of its Subsidiaries under or with respect to any of their respective Contractual Obligations in any respect which, if not cured, would reasonably be expected to have a Material Adverse Effect, or to Hanover's knowledge any default or event of default by any third party under or with respect to any Contractual Obligation of said third party with Hanover or any of its Subsidiaries in a respect which, if not cured, would reasonably be expected to have a Material Adverse Effect (ii) litigation, investigation or proceeding of which Hanover has actual knowledge which may exist at any time between Hanover or any Subsidiary of Hanover and any Governmental Authority, which in either case, would reasonably be expected to have a Material Adverse Effect; 25 (c) any litigation or proceeding affecting Hanover or any Subsidiary of Hanover of which Hanover has actual knowledge in which the amount involved is $5,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought and which, in each case, if adversely determined would reasonably be expected to have a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after Hanover or any of its Subsidiaries has actual knowledge thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PGBC or a Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC, Hanover, HCLP or any Commonly Controlled Entity with respect to the withdrawal from, or the termination, Reorganization or Insolvency of any Plan (other than pursuant to Section 4041(b) of ERISA); and (e) a development or event which has had or would reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action Hanover proposes to take with respect thereto. (j) Subsection 10.8 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 10.8 Environmental Laws. Comply in all material respects with, and undertake all reasonable efforts to ensure material compliance by all tenants and subtenants, if any, with, all Environmental Laws and obtain and comply in all material respects with and maintain, and undertake all reasonable efforts to ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, and upon discovery of any material non-compliance, undertake all reasonable efforts to attain full material compliance; (a) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except, in each case, to the extent that the failure to so conduct, complete or take such actions, or to comply with such orders and directives, would not in the aggregate reasonably be expected to have a Material Adverse Effect; (b) Defend, indemnify and hold harmless the Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws applicable to the real property owned or operated by Hanover or any Subsidiary of Hanover, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor; and 26 (c) Maintain a program to identify and promote substantial compliance with and to minimize prudently any material liabilities or material potential liabilities under any Environmental Law that may affect Hanover or any of its Qualified Subsidiaries. (k) Subsection 10.10 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and substituting the following in its place: 10.10 Additional Collateral, etc. (a) With respect to any new Subsidiary (other than an Excluded Unqualified Subsidiary) created or acquired after the Corporate Credit Agreement Closing Date by Hanover or any of its Qualified Subsidiaries (which, for the purposes of this paragraph (b), shall include any existing Subsidiary that ceases to be an Excluded Unqualified Subsidiary), promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by Hanover or any of its Subsidiaries, (ii) if requested by the Administrative Agent or the Required Lenders, deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of Hanover or the relevant Subsidiary, and (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement and (B) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent. The parties hereto acknowledge that the Guarantee and Collateral Agreement provides that each such Subsidiary shall be required to pledge its assets as provided therein but shall not be required to guarantee payment of obligations pursuant thereto unless (i) such Subsidiary guarantees payment of all or any portion of the Guaranteed Obligations, as defined in the 2001A Participation Agreement and the 2001B Participation Agreement, or (ii) such Subsidiary is requested to become a guarantor by the Administrative Agent or the Required Lenders. (b) With respect to any new Excluded Unqualified Subsidiary created or acquired after the Corporate Credit Agreement Closing Date by Hanover or any Subsidiary, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by Hanover or any Subsidiary that is not an Excluded Unqualified Subsidiary (provided that in no event shall (a) more than 66% of the total outstanding voting Capital Stock of any such new Subsidiary be required to be so pledged and (b) the Capital Stock of Subsidiaries not directly owned by Hanover, HCLP or any Qualified Subsidiary be required to be pledged), and (ii) if requested by the Administrative Agent or the Required Lenders, deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of Hanover or the relevant Subsidiary, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Administrative Agent's security interest therein. (c) With respect to any fee interest in any real property located in the United States having a book value (together with improvements thereof) of at least $1,000,000 acquired 27 after the Corporate Credit Agreement Closing Date by Hanover or any Subsidiary (other than (x) any such real property subject to a Lien expressly permitted by Section 8.3(p) and (y) real property acquired by any Excluded Unqualified Subsidiary), promptly (i) execute and deliver a first priority Mortgage, in favor of the Administrative Agent, for the benefit of the Lenders, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real property (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor's certificate and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 7. Amendments to Section 11 of each of the Synthetic Guarantees. (a) Subsection 11.1 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.1 Financial Condition Covenants. (a) Minimum Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth of HCLP to be less than $[_________]. [NOTE: such amount to equal 80% of the Tangible Net Worth at closing]. (b) Consolidated Senior Indebtedness to Consolidated Adjusted EBITDAR. Permit the ratio of Consolidated Senior Indebtedness of HCLP to Consolidated Adjusted EBITDAR of HCLP for the four consecutive fiscal quarters of HCLP most recently ended to be greater than 3.75 to 1.0. (c) Consolidated Indebtedness to Consolidated EBITDAR. Permit the ratio of Consolidated Indebtedness of HCLP to Consolidated EBITDAR of HCLP for the four consecutive fiscal quarters of HCLP ending with any fiscal quarter set forth below (the "Consolidated Leverage Ratio") to be greater than the ratio set forth below opposite such fiscal quarter:
Fiscal Quarter Ending Ratio - ------------------------------------------------------------------------------- September 30, 2003 through September 30, 2005 4.25 to 1.0 - ------------------------------------------------------------------------------- December 31, 2005 through March 31, 2006 4.00 to 1.0 - ------------------------------------------------------------------------------- June 30, 2006 and thereafter 3.75 to 1.0
(d) Interest Coverage Ratio. Permit the ratio of Consolidated EBITDAR of Hanover to Consolidated Interest Expense of Hanover for the period of four consecutive fiscal quarters of Hanover most recently ended to be less than 2.25 to 1.0. (b) Subsection 11.2 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 28 11.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness in respect of the Loans, and other obligations of the Credit Parties under the Corporate Credit Agreement and the other Loan Documents; (b) Indebtedness of Hanover or HCLP to any of its Subsidiaries and of any such Subsidiary which is a Credit Party to HCLP or any other Subsidiary of HCLP; (c) Indebtedness outstanding as of the Corporate Credit Agreement Closing Date and listed on Schedule 11.2(c) and any Refinancing Indebtedness incurred in respect thereof; (d) Indebtedness in respect of Financing Leases; provided that, after giving effect thereto, Section 11.7 is not contravened; (e) Indebtedness in respect of Subordinated Debt, the terms and conditions of which have been approved in writing by the Agents and any Refinancing Indebtedness incurred in respect thereof; (f) Non-Recourse Indebtedness of Unqualified Subsidiaries in an aggregate amount not to exceed $50,000,000 at any time, less the Dollar amount of any Permitted Credit Support that is included in the calculation of any other exception to this Section 11.2 or, with respect to any Permitted Credit Support constituting a Guarantee Obligation, in the calculation of any of the exceptions to Section 11.4; (g) Indebtedness of a Person which becomes a Subsidiary after the date hereof in an aggregate principal amount not exceeding as to Hanover and its Subsidiaries $20,000,000 at any time outstanding, provided that (i) such indebtedness existed at the time such Person became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such Person by Hanover or any of its Subsidiaries no Default or Event of Default shall have occurred and be continuing; (h) Indebtedness in respect of Equipment Lease Tranche A Loans and any Refinancing Indebtedness incurred in respect thereof; (i) Indebtedness in respect of the 2008 Notes and any Refinancing Indebtedness incurred in respect thereof; (j) Indebtedness of Hanover evidenced by the Hanover Zero Coupon Subordinated Notes and any Refinancing Indebtedness incurred in respect thereof; (k) Indebtedness of Hanover in respect of the 2003 Notes in an aggregate principal amount not to exceed $275,000,000 (provided that any proceeds received from the issuance of the 2003 Notes in excess of $200,000,000 shall be used to prepay the 2000A Synthetic Lease and/or the 2000B Synthetic Lease) and any Refinancing Indebtedness incurred in respect thereof; (l) Guarantee Obligations permitted by Section 11.4; 29 (m) Indebtedness of Hanover evidenced by the Hanover Convertible Notes in an aggregate principal amount not to exceed $[150,000,000] and any Refinancing Indebtedness incurred in respect thereof; (n) Indebtedness of Hanover or HCLP in an aggregate principal amount not to exceed the amount required to repurchase the Equipment subject to an Equipment Lease (described in clause (i), (ii) or (iii) of the definition thereof) pursuant to the purchase option set forth in Section 20 of such Equipment Lease, provided that the proceeds of such Indebtedness are used solely to purchase such Equipment pursuant to such purchase option (the "Equipment Lease Refinancing"); (o) Investments permitted to be made pursuant to Section 11.10 in the form of Indebtedness; (p) to the extent constituting Indebtedness, obligations under Derivatives permitted under Section 11.9; (q) Indebtedness secured by Liens permitted by Section 11.3(s) in an aggregate principal amount not to exceed $25,000,000 at any one time outstanding; (r) Indebtedness assumed by HCLP or any of its Subsidiaries pursuant to the Permitted International Reorganization and any Refinancing Indebtedness incurred in respect thereof; and (s) unsecured Indebtedness not otherwise permitted by clauses (a)-(r) above not exceeding $40,000,000 in the aggregate at any time outstanding. (c) Subsection 11.3 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes, assessments, governmental charges or levies (but excluding judgment Liens) not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of Hanover or any Subsidiary of Hanover, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; 30 (e) immaterial irregularities in title, easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of Hanover or any of its Subsidiaries; (f) leases or subleases granted to third Persons not interfering in any material respect with the business of Hanover or any of its Subsidiaries; (g) Liens arising from UCC financing statements regarding leases permitted by this Agreement, the other Equipment Leases or the Corporate Credit Agreement; (h) any interest or title of a lessor or sublessor under any lease permitted by this Agreement, the other Equipment Leases or the Corporate Credit Agreement; (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods so long as such Liens attach only to the imported goods; (j) Liens arising out of consignment or similar arrangements for the sale of goods entered into by Hanover or any of its Subsidiaries in the ordinary course of business; (k) Liens created pursuant to Financing Leases permitted pursuant to Section 11.2(d); (l) Liens in existence on the Corporate Credit Agreement Closing Date listed on Schedule 11.3(l), securing Indebtedness permitted by Section 11.2(c) including any Refinancing Indebtedness incurred in respect thereof, provided that no such Lien is spread to cover any additional property after the Corporate Credit Agreement Closing Date; (m) Liens on (i) natural gas compressors and related equipment, and usual accessories and improvements and proceeds thereof, and (ii) oil and gas production equipment, in each case, the acquisition of which were financed with the proceeds of the Indebtedness permitted by Section 11.2(d) and which secures only such Indebtedness, provided that any such Lien is placed upon such natural gas compressor or related equipment or such oil and gas production equipment at the time of the acquisition of such natural gas compressors or related equipment or such oil and gas production equipment by Hanover or any of its Subsidiaries and the Lien extends to no other property, and provided, further, that no such Lien is spread to cover any additional property after the date such Lien attaches and that the amount of Indebtedness secured thereby is not increased; (n) Liens on the assets of Unqualified Subsidiaries of Hanover securing Indebtedness of such Unqualified Subsidiaries permitted under Section 11.2(f); (o) Liens securing Derivatives entered into by Hanover and its Subsidiaries with a lender under this Agreement or the Equipment Lease Transactions and which are permitted under Section 11.9; (p) Liens on the property or assets of a Person which becomes a Subsidiary after the date hereof securing Indebtedness permitted by Section 11.2(g), provided that (i) such Liens existed at the time such Person became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such Person after the time such 31 Person becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not increased; (q) Liens that arise in connection with the Equipment Lease Transactions; (r) Liens created pursuant to the Security Documents; (s) Liens securing Indebtedness of HCLP or any other Subsidiary incurred pursuant to Section 11.2(r) to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased; (t) Liens not otherwise permitted in clauses (a)-(s) above securing Indebtedness not exceeding $2,500,000 in the aggregate; (u) judgment Liens against Hanover or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of less than $5,000,000 in the aggregate; and (v) Liens on the property or assets of POC securing Indebtedness permitted by Section 11.2; provided that (i) such Liens existed at the time POC became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of POC after the time POC becomes a Subsidiary, and (iii) the amount of Indebtedness, Guarantee Obligations and other obligations secured thereby is not increased. (d) Subsection 11.4 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer to exist any Guarantee Obligations except: (a) the Guarantees (as defined in the Corporate Credit Agreement) and the Equipment Lease Guarantees, and any Refinancing Indebtedness incurred in respect thereof; (b) up to $5,000,000 in the aggregate of Guarantee Obligations of HCLP or any of its Subsidiaries in connection with indebtedness incurred by customers of HCLP or any of its Subsidiaries; provided, that the proceeds of any such indebtedness shall be used by such customers to purchase natural gas compressors or oil and gas production equipment from HCLP or any of its Subsidiaries; (c) Guarantee Obligations (in respect of obligations not constituting Indebtedness) arising under agreements entered into by HCLP or any of its Subsidiaries in the ordinary course of business; (d) guarantees in respect of Indebtedness (other than Subordinated Debt and the 2003 Notes) permitted under this Agreement; (e) Guarantee Obligations of Hanover and any of its Subsidiaries arising pursuant to the Equipment Lease Transactions, and any Refinancing Indebtedness incurred in respect thereof; 32 (f) the Guarantor Obligations of HCLP in the nature of a guarantee or indemnification for, in each case, performance obligations (and not Indebtedness) as contemplated by the HMS Transactions; (g) the Subordinated Guarantee Obligations of Hanover arising under the TIDES Guarantees, and any Refinancing Indebtedness incurred in respect thereof; (h) the 2003 Notes Subordinated Guarantee; and (i) Guarantee Obligations of Hanover and any of its Subsidiaries arising pursuant to the Equipment Lease Refinancing, and any Refinancing Indebtedness incurred in respect thereof. Notwithstanding the foregoing, Subsidiaries of Hanover may not provide Guarantee Obligations in respect of the 2008 Notes (or any permitted refinancing thereof), the Hanover Convertible Notes, the Hanover Zero Coupon Subordinated Notes or other indebtedness issued by Hanover (other than the 2003 Notes and any Refinancing Indebtedness incurred in respect thereof, the guarantees of which shall be subordinated to the Obligations). (e) Subsection 11.5 of each of the Synthetic Guarantees is hereby amended by (i) deleting clauses (f) and (g) thereof in their entirety and (ii) adding the following after clause (e) thereof: (f) the TIDES Trust may wind up or dissolve itself (or suffer a liquidation or dissolution), or convey, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, as contemplated by the TIDES Declaration of Trust; (g) any of the HMS Entities may wind up, dissolve (or suffer a liquidation or dissolution), or convey, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets; (h) any merger, consolidation, amalgamation, liquidation, winding up, dissolution, conveyance, sale, lease, assignment, transfer, disposition or material change undertaken pursuant to the Permitted International Reorganization; (i) any Qualified or Unqualified Subsidiary that sells, leases, assigns, transfers or otherwise disposes of substantially all of its assets in accordance with the provisions of clauses (c) or (d) above may then dissolve, liquidate or be wound up; and (j) any merger, consolidation, amalgamation, liquidation, winding up, dissolution, conveyance, sale, lease, assignment, transfer, disposition or material change that is undertaken in a series of steps and that, after giving effect to all such steps, would be permitted under one or more of clauses (a) through (j) above. (f) Subsection 11.6 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.6 Limitation on Sale or Lease of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, except: (a) sales, transfers or other Dispositions of personal property in the ordinary course of business when, in the reasonable judgment of Hanover, such property is no 33 longer used or useful in the conduct of its business or the business of its Subsidiaries, provided that the aggregate value of obsolete or worn out natural gas compressors and oil and gas production equipment disposed of in the ordinary course of business does not exceed $40,000,000 during any fiscal year of Hanover; (b) the sale of inventory and other similar assets in the ordinary course of business, provided that if such inventory is comprised of natural gas compressors or oil and gas production equipment, such natural gas compressors or oil and gas production equipment were never part of the natural gas compressors or oil and gas production equipment leased or held for lease by HCLP or any of its Subsidiaries; (c) the lease or sublease by HCLP or any of its Subsidiaries as lessor of equipment in the ordinary course of business under operating leases (which do not constitute Financing Leases); (d) the sale or discount without recourse of defaulted accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (e) as permitted by Section 11.5 and Section 11.10; (f) the sale of natural gas compressors and oil and gas production equipment, other than disposals and sales covered by clauses (a) and (b) above, provided that the fair market value of natural gas compressors and oil and gas production equipment sold during the term of this Agreement does not exceed ten percent of the aggregate fair market value of all natural gas compressors and oil and gas production equipment owned by HCLP and its Qualified Subsidiaries; provided further that if the proceeds are reinvested in natural gas compressors or oil and gas production equipment to be owned by HCLP or its Qualified Subsidiaries within nine months after the sale of the assets which produced such proceeds, such proceeds shall not be included for purposes of this covenant; (g) the sale or exchange of natural gas compressors to the Lessor in connection with the Equipment Lease Transactions; and provided (i) that each such sale or exchange is for fair market value and (ii) the aggregate fair market value of natural gas compressors so sold or exchanged after the Corporate Credit Agreement Closing Date does not exceed $65,000,000 per fiscal year; (h) the lease of assets as listed on Schedule 11.6(h); (i) asset sales made on or after the Corporate Credit Agreement Closing Date consisting of sales of assets described on Schedule 11.6(i) hereto for fair market value; (j) pursuant to the Permitted International Reorganization; and (k) the Disposition of other property having a fair market value not to exceed $5,000,000 in the aggregate for any fiscal year of HCLP. (g) Subsection 11.8 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 34 11.8 Limitation on Dividends. Declare or pay any dividend (other than dividends payable solely in common stock of such Person or in options, warrants or rights to purchase such common stock) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of such Person or any warrants or options to purchase any such Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Hanover or any Subsidiary of Hanover (collectively, "Restricted Payments"), except that if no Default or Event of Default exists or would reasonably be expected to be caused thereby (i) Subsidiaries of Hanover may declare and pay dividends to Hanover (to the extent necessary to pay interest on, or redeem, the TIDES Debentures and any Refinancing Indebtedness incurred in respect thereof or to cover operating expenses of Hanover) and other shareholders of such Subsidiaries and the TIDES Trust may redeem the TIDES as contemplated by the TIDES Declaration of Trust and any Refinancing Indebtedness incurred in respect thereof, (ii) Hanover may repurchase or redeem shares of Hanover common stock from its employees and former employees so long as the aggregate amount of all such repurchases since the Corporate Credit Agreement Closing Date does not exceed $7,500,000, (iii) Subsidiaries of Hanover may declare and pay dividends, or make distributions, to Hanover to the extent necessary to allow Hanover to pay scheduled interest on the 2008 Notes and any Refinancing Indebtedness incurred in respect thereof, (iv) Subsidiaries of Hanover may declare and pay dividends, or make distributions, to Hanover to the extent necessary to allow Hanover to pay interest when due on the Hanover Convertible Notes and any Refinancing Indebtedness incurred in respect thereof, (v) Subsidiaries of Hanover may declare and pay dividends, or make distributions, to Hanover to the extent necessary to allow Hanover to pay interest when due on the 2003 Notes and any Refinancing Indebtedness incurred in respect thereof, and (vi) any Subsidiary may make Restricted Payments to HCLP. (h) Subsection 11.9 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.9 Limitation on Derivatives. Enter into or assume any obligations with respect to any Derivatives except for (i) Derivatives used by Hanover or any of its Subsidiaries in managing the interest rate risk exposure, commodity risk exposure or foreign currency risk exposure of Hanover and its Subsidiaries; provided, that the aggregate amounts of the Derivatives permitted by this clause (i) shall not exceed the aggregate amount of Indebtedness outstanding under this Agreement and the Equipment Lease Transactions and (ii) existing Derivatives of POC (so long as such Derivatives exist at the time POC became a Subsidiary and were not created in anticipation thereof); provided, further, that Derivatives entered into pursuant to clause (i) or (ii) above must be entered into for non-speculative purposes. For the purposes of clause (i), (x) in the case of Derivatives for managing interest rate risk or foreign exchange risk, the "amount" thereof shall be the aggregate notional amounts, and (y) in the case of Derivatives for managing commodity risk exposure, the "amount" thereof shall be the aggregate net amounts (including any net termination payments) required to be paid to counterparties thereunder. (i) Subsection 11.10 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.10 Limitation on Investments, Loans and Advances. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, sell or contribute personal property or other assets to, or make any other investment in (all of the foregoing being herein collectively referred to as "Investments"), any Person, except: 35 (a) extensions of trade credit in the ordinary course of business; (b) Investments in Cash Equivalents; (c) loans and advances to employees of such Person or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business in an aggregate amount for Hanover and its Subsidiaries not to exceed $1,000,000 at any one time outstanding; (d) Investments by Hanover in its Subsidiaries which are or become Credit Parties and investments by such Subsidiaries which are or become Credit Parties in other Subsidiaries of Hanover which are or become Credit Parties; (e) Net Unqualified Subsidiary Investments not to exceed, in the aggregate, for each time period specified in the table set forth below, the cumulative amount specified in such table, provided that (i) at the time of each such Net Unqualified Subsidiary Investment, no Default or Event of Default shall have occurred and be continuing or result from such Net Unqualified Subsidiary Investment, (ii) all transactions related to such Net Unqualified Subsidiary Investment shall be consummated in accordance with applicable law, (iii) with respect to any acquired or newly formed Unqualified Subsidiary relating to such Net Unqualified Subsidiary Investment, such acquired or newly formed Unqualified Subsidiary shall take all actions required to be taken, if any, with respect to such acquired or newly formed Unqualified Subsidiary under the Credit Documents, (iv) Hanover shall be in compliance, on a pro forma basis after giving effect to such Net Unqualified Subsidiary Investment, with the covenants contained in Section 11.1 computed as at the last day of the fiscal quarter most recently ended prior to the delivery of the certificate required pursuant to this clause (iv), and Hanover shall have delivered to the Agent an officer's certificate to such effect concurrently with the delivery of each certificate of a Responsible Officer pursuant to Section 10.2(b) hereof, together with all relevant financial information with respect to such Net Unqualified Subsidiary Investment, and (v) after giving effect to the consummation of the transactions contemplated by such Net Unqualified Subsidiary Investment, the Loans to be made and the Letters of Credit to be issued under the Corporate Credit Agreement, the sum of (A) the cash and Cash Equivalents (to the extent such cash and Cash Equivalents are free of any Liens other than customary bankers' liens, the Liens created pursuant to the Security Documents and other Liens that are expressly permitted to exist pursuant to the provisions of the Security Documents) then held by Hanover and its Qualified Subsidiaries and (B) the Available Commitments (as defined in the Corporate Credit Agreement) of all the Lenders under the Corporate Credit Agreement equals at least $60,000,000. In the table set forth below, the column headed "Aggregate Dollar amount of cash and net book value of other assets" refers to the aggregate U.S. Dollar amount of cash and Cash Equivalents and (in the case of property and assets other than cash and Cash Equivalents) the net book value of such property and other assets that, in each case, are transferred, contributed, sold or otherwise conveyed by Hanover and its Qualified Subsidiaries to such Unqualified Subsidiaries of Hanover as Net Unqualified Subsidiary Investments during each time period as indicated. For the avoidance of doubt, (I) the amounts specified in the second column of the table set forth below are "cumulative" amounts (by way of example, for the table below, during the time period beginning on the Corporate Credit Agreement Closing Date and ending on December 31, 2003, Net Unqualified Subsidiary Investments of up to $25,000,000 may 36 be made, and, during the time period beginning on the Corporate Credit Agreement Closing Date and ending on the Final Maturity Date, Unqualified Subsidiary Investments of up to $200,000,000 may be made), and (II) the Investments listed in Schedule 11.10A shall not be included in the amounts in the second column of the table set forth below:
Aggregate Dollar amount of cash and net book value of Time Period other assets - ------------------------------------------------------------------------------------------------------ Corporate Credit Agreement Closing Date $ 25,000,000 through Dec. 31, 2003 - ------------------------------------------------------------------------------------------------------ Corporate Credit Agreement Closing Date $ 75,000,000 through Dec. 31, 2004 - ------------------------------------------------------------------------------------------------------ Corporate Credit Agreement Closing date $150,000,000 through Dec. 31, 2005 - ------------------------------------------------------------------------------------------------------ Corporate Credit Agreement Closing Date $200,000,000 through the Final Maturity Date
(f) Investments by Unqualified Subsidiaries of Hanover in other Unqualified Subsidiaries of Hanover (whether existing, newly formed or acquired) or in Qualified Subsidiaries (whether existing, newly formed or acquired) of Hanover provided that (i) at the time of each such Investment, no Default or Event of Default shall have occurred and be continuing or result from such Investment, (ii) all transactions related to such Investment shall be consummated in accordance with applicable law, (iii) any such acquired or newly formed Subsidiary shall take all actions required to be taken, if any, with respect to such acquired or newly formed Subsidiary under the Credit Documents, and (iv) Hanover shall be in compliance, on a pro forma basis after giving effect to such Investment, with the covenants contained in Section 11.1 computed as at the last day of the fiscal quarter most recently ended prior to the delivery of the certificate required pursuant to this clause (iv), and Hanover shall have delivered to the Agent an officer's certificate to such effect concurrently with the delivery of each certificate of a Responsible Officer pursuant to Section 10.2(b) hereof, together with all relevant financial information with respect to such Investment; (g) Investments constituting Permitted Business Acquisitions so long as, (a) after giving effect to the consummation of the transactions contemplated by each Permitted Business Acquisition, the Loans to be made and the Letters of Credit to be issued under the Corporate Credit Agreement, the sum of (i) the cash and Cash Equivalents (to the extent such cash and Cash Equivalents are free of any Liens other than customary bankers' liens, the Liens created pursuant to the Security Documents and other Liens that are expressly permitted to exist pursuant to the provisions of the Security Documents) then held by Hanover and its Qualified Subsidiaries and (ii) the Available Commitments (as defined in the Corporate Credit Agreement) of all the Lenders under the Corporate Credit Agreement at such time equals at least $60,000,000 and (b) the aggregate amount of Investments constituting Permitted Business Acquisitions for any fiscal year shall not exceed $25,000,000 in the aggregate; (h) Investments or acquisitions by Hanover or its Subsidiaries in (i) up to 50% of the shares of capital stock, partnership interests, joint venture interests, limited liability company interests or other similar equity interests in, a Person (other than a Subsidiary), or (ii) loans or advances to a Person (other than a Subsidiary), provided that 37 (a) after giving effect to the consummation of the transactions contemplated by each such Investment or acquisition, the Loans to be made and the Letters of Credit to be issued under the Corporate Credit Agreement, the sum of (x) the cash and Cash Equivalents (to the extent such cash and Cash Equivalents are free of any Liens other than customary bankers' liens, the Liens created pursuant to the Security Documents and other Liens that are expressly permitted to exist pursuant to the provisions of the Security Documents) then held by Hanover and its Qualified Subsidiaries and (y) the Available Commitments (as defined in the Corporate Credit Agreement) of all the Lenders under the Corporate Credit Agreement at such time equals at least $60,000,000 and (b) the aggregate amount of all such loans, advances, investments or acquisitions does not exceed $25,000,000 in any fiscal year; (i) Loans to employees, officers and directors of Hanover and its Subsidiaries to acquire shares of capital stock of Hanover not to exceed $8,000,000; (j) the purchase by the TIDES Trust of the TIDES Debentures, as contemplated under the TIDES Declaration of Trust; (k) (i) Investments in POC's Joint Ventures existing on the date of consummation of the POC Acquisition and (ii) Investments in POC's Joint Ventures pursuant to commitments existing at the time of the POC Acquisition in an aggregate amount not to exceed $10,000,000; (l) Investments in Unqualified Subsidiaries listed in Schedule 11.10A; (m) Investments in Unrestricted Subsidiaries in an aggregate amount not to exceed $1,000,000 at any one time; and (n) Investments undertaken pursuant to the Permitted International Reorganization. (j) Subsection 11.11 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.11 Limitation on Optional Payments and Modifications of Debt Instruments. (i) Make any optional payment or optional prepayment on or optional redemption, optional purchase or optional defeasance of any portion of the Hanover Zero Coupon Subordinated Notes or any Refinancing Indebtedness incurred in respect thereof (other than an Offset Prepayment, as such term is defined in the Indenture related to the Hanover Zero Coupon Subordinated Notes), the 2008 Notes or any Refinancing Indebtedness incurred in respect thereof (other than scheduled cash interest payments), the Hanover Convertible Notes or any Refinancing Indebtedness incurred in respect thereof (other than scheduled cash interest payments), the 2003 Notes or any Refinancing Indebtedness incurred in respect thereof (other than scheduled cash interest payments), the 2001A Equipment Lease Securities or any Refinancing Indebtedness incurred in respect thereof (other than scheduled cash interest payments, subject to applicable subordination provisions), the 2001B Equipment Lease Securities or any Refinancing Indebtedness incurred in respect thereof (other than scheduled cash interest payments, subject to applicable subordination provisions), lease and guarantee payments in respect of the 2001A Equipment Lease Transaction or any Refinancing Indebtedness incurred in respect thereof (other than scheduled lease payments, subject to applicable subordination provisions), and lease and guarantee payments in respect of the 2001B Equipment Lease Transaction or any Refinancing Indebtedness incurred in 38 respect thereof (other than scheduled lease payments, subject to applicable subordination provisions), (ii) make any optional payment or optional prepayment in excess of $10,000,000 during any calendar year on or redemption of any Indebtedness or Guarantee Obligations other than (a) as permitted in clause (i) above, or (b) any optional payment, prepayment or redemption of any Indebtedness or Guarantee Obligations pursuant to the Equipment Lease Transactions (other than the 2001A Equipment Lease Transaction and the 2001B Equipment Lease Transaction or any Refinancing Indebtedness incurred in respect thereof) or (iii) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms of any Indebtedness or Guarantee Obligations other than in connection with any Refinancing Indebtedness that is permitted to be incurred (or exists) pursuant to the provisions of Section 11.2. (k) Subsection 11.13 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.13 Sale and Leaseback. Except for the transactions of a type set forth on Schedule 11.13, enter into any arrangement with any Person where Hanover or any of the Subsidiaries of Hanover is the lessee of real or personal property which has been or is to be sold or transferred by Hanover or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of Hanover or such Subsidiary (any of such arrangements, a "Sale and Leaseback Transaction"), except that (i) HCLP and its Subsidiaries may enter into Financing Leases as lessee for natural gas compressors and oil and gas production equipment if after giving effect thereto Section 11.2 is not contravened and (ii) HCLP may enter into Sale and Leaseback Transactions as lessee for natural gas compressors in connection with the Equipment Lease Transactions. (l) Subsection 11.16 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.16 Nature of Business. (A) In the case of any Subsidiary, engage in any business other than (a) the leasing, maintenance, purchase, sale and operation of natural gas compressor units and oil and gas production equipment, (b) the design, engineering and fabrication of natural gas compressor units, (c) the design, engineering and fabrication of oil and gas production equipment, desalinization plants and other related equipment, (d) the provision of contract compression and related services, (e) the provision of gas metering services as contemplated under the HMS Transactions, (f) the provision of gas measurement and related services, (g) the design, engineering, fabrication, maintenance, leasing, purchase and sale of 0- to 50-megawatt skid-mounted, engine-driven generators, together with services related thereto and (h) any activities related thereto which are consistent with past practice and conducted in the ordinary course of business; and (B) in the case of Hanover, notwithstanding anything to the contrary contained herein, engage in any business other than (i) the direct or indirect ownership of HCLP together with any activities related thereto, (ii) the performance of its obligations under the Credit Documents, (iii) the performance of its obligations under the 2008 Notes, the 2003 Notes, the Hanover Convertible Notes or the Hanover Zero Coupon Subordinated Notes and, in each case, any Refinancing Indebtedness incurred in respect thereof, (iv) the performance of its obligations in connection with the TIDES, including, without limitation, its obligations under the TIDES Indenture, the TIDES Guarantees and the TIDES Declaration of Trust, (v) the performance of its obligations under the documents executed in connection with the Wells Fargo Term Note, (vi) the formation and ownership of Subsidiaries for the purpose of making acquisitions to the extent permitted under the Credit Documents, (vii) the refinancing of the 2008 Notes, (viii) any actions required by law or the rules of any securities exchange on which its securities are listed and/or 39 traded, and (ix) any other actions that Hanover is expressly permitted to take pursuant to the provisions of the Credit Documents. (m) Subsection 11.17 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following in its place: 11.17 Unqualified Subsidiaries. Permit any Unqualified Subsidiary to directly or indirectly own any material assets (other than cash or Cash Equivalents located in bank accounts) which are located in the United States of America or any territory thereof. (n) Subsection 11.18 of each of the Synthetic Guarantees is hereby amended by deleting such Section in its entirety and adding the following after Section 11.17: 11.18 Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of Hanover or any Subsidiary of Hanover to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its obligations under the Credit Documents to which it is a party other than (a) the Corporate Credit Agreement and the other Loan Documents (as defined in the Corporate Credit Agreement), (b) the Equipment Lease Transactions, (c) any agreements governing any purchase money Liens or capital lease obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby), (d) the Wells Fargo Credit Agreement, (e) agreements entered into by Subsidiaries not directly owned by Hanover, HCLP or any Qualified Subsidiary, (f) agreements entered into by Unqualified Subsidiaries with respect to Non-Recourse Indebtedness and (g) with respect to property or revenues that do not constitute Collateral (as such term is defined in the Guarantee and Collateral Agreement), negative pledges covering property or revenues with a de minimis value; provided, that, notwithstanding Section 6.1 of the Credit Agreement, any negative pledge clauses covering properties or revenues that do not constitute Collateral may be cured within ninety (90) days. 11.19 Clauses Restricting Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of Hanover to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, Hanover or any other Subsidiary of Hanover, (b) make loans or advances to, or other Investments in, Hanover or any other Subsidiary of Hanover or (c) transfer any of its assets to Hanover or any other Subsidiary of Hanover, except for (i) such encumbrances or restrictions existing under or by reason of (x) any restrictions existing under the Corporate Credit Agreement and the other Loan Documents (as defined in the Corporate Credit Agreement) and the Equipment Lease Participation Agreements and (y) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (ii) encumbrances or restrictions which do not adversely affect the ability of Hanover and its Subsidiaries to repay the Loans hereunder, (iii) agreements entered into by Subsidiaries not directly owned by Hanover, HCLP or any Qualified Subsidiary and (iv) agreements entered into by Unqualified Subsidiaries with respect to Non-Recourse Indebtedness. 8. Amendment to Annex B to each of the Participation Agreements. Annex B to each of the Participation Agreements is hereby amended by deleting Annex B thereof in its entirety and adding Annex B attached hereto in its place. 40 9. Effectiveness. This Amendment shall become effective (the "Effective Date") upon fulfillment of the following conditions precedent: (a) Hanover, HCLP and the Guarantors referred to below shall have delivered to the Agent duly executed copies of this Amendment, (b) the Agent shall have received duly executed copies of this Amendment from the Required Lenders under the Synthetic Guarantees and (c) no Default or Event of Default shall have occurred and be continuing on the date hereof after giving effect to this Amendment. 10. Representations and Warranties. Hanover and HCLP hereby represent and warrant that the representations and warranties contained in the Operative Agreements (as defined in each of the Synthetic Guarantees) will be, after giving effect to this Amendment, true and correct in all material respects, as if made on and as of the date hereof (except those which expressly speak as of a certain date). 11. Continuing Effect of the Participation Agreements and Operative Agreements. This Amendment shall not constitute an amendment or waiver of any other provision of the Operative Agreements not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of HCLP, Hanover, the 2000B Lessor, the 2000A Lessor or the 1999 Lessor that would require a waiver or consent of the Agent and/or the 2000B Lenders, the 2000A Lenders or the 1999 Lenders. Except as expressly amended hereby, the provisions of the Operative Agreements are and shall remain in full force and effect. 12. Counterparts. This Amendment may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. 13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 14. Expenses. Hanover and HCLP agree to pay or reimburse the Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amendment, including, without limitation, the fees and disbursements of counsel to the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first written above. HANOVER COMPRESSOR COMPANY By: /s/ John E. Jackson ----------------------------------- Name: John E. Jackson Title: Senior Vice President & CFO HANOVER COMPRESSION LIMITED PARTNERSHIP By: /s/ John E. Jackson ----------------------------------- Name: John E. Jackson Title: Senior Vice President & CFO JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENT AND AS A LENDER By: --------------------------------- Name: --------------------------------- Title: --------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first written above. HANOVER COMPRESSOR COMPANY By: --------------------------------- Name: --------------------------------- Title: --------------------------------- HANOVER COMPRESSION LIMITED PARTNERSHIP By: --------------------------------- Name: --------------------------------- Title: --------------------------------- JPMORGAN CHASE BANK, AS AGENT By: /s/ Russell A. Johnson --------------------------------- Name: Russell A. Johnson --------------------------------- Title: Vice President --------------------------------- JPMorgan Chase Bank ---------------------------------------- (Name of Lender) By: /s/ Russell A. Johnson ----------------------------------- Name: Russell A. Johnson Title: Vice President BANK ONE, NA ---------------------------------------- (Name of Lender) By: /s/ Helen A. Carr ----------------------------------- Name: Helen A. Carr Title: First Vice President HANOVER COMPRESSOR COMPANY AMENDMENT DATED AS OF DECEMBER __, 2003 MHCB (USA) LEASING & FINANCE CORPORATION (successor by merger to FBTC LEASING CORP.) By: /s/ Victor Mora --------------------------------- Name: Victor Mora Title: Vice President HANOVER COMPRESSOR COMPANY AMENDMENT DATED AS OF DECEMBER 9th, 2003 Citibank, N.A. By: /s/ Joronne Jeter --------------------------------- Name: Joronne Jeter Title: Attorney-in-Fact BANK HAPOALIM B.M. By: /s/ James P. Surless ----------------------------------- Name: James P. Surless Title: Vice President By: /s/ Laura Anne Raffa ----------------------------------- Name: Laura Anne Raffa Title: Senior Vice President & Corporate Manager ---------------------------------------- The Bank of Nova Scotia By: /s/ William E. Zarrett ----------------------------------- Name: William E. Zarrett Title: Managing Director Guaranty Bank By: /s/ Jim R. Hamilton ----------------------------------- Name: Jim R. Hamilton Title: Senior Vice President ARAB BANKING CORPORATION (B.S.C.) ---------------------------------------- (Name of Lender) By: /s/ Tarek Shellala ----------------------------------- Name: Tarek Shellala Title: Vice President By: /s/ Barbara C. Sanderson ----------------------------------- Name: Barbara C. Sanderson Title: Vice President Head of Credit National City Bank --------------------------------------- (Name of Lender) By: /s/ Tom Gurbach ------------------------------------ Name: Tom Gurbach Title: Vice President BNP Paribas By: /s/ Mark A. Cox ----------------------------------- Name: Mark A. Cox Title: Director By: /s/ Polly Schott ----------------------------------- Name: Polly Schott Title: Vice President The Royal Bank of Scotland plc ---------------------------------------- (Name of Lender) By: /s/ Patricia J. Dundee ----------------------------------- Name: Patricia J. Dundee Title: Senior Vice President Scotiabank Inc. ---------------------------------------- (Name of Lender) By: /s/ William E. Zarrett --------------------------- Name: William E. Zarrett Title: Managing Director HANOVER COMPRESSOR COMPANY AMENDMENT DATED AS OF DECEMBER 5, 2003 /s/ [Illegible] ---------------------------------------- THE BANK OF TOKYO-MITSUBISHI, LTD. Consented to: DZ Bank AG Deutsche Zentral-Genossenschaftsbank New York Branch By: /s/ Mark K. Connelly ----------------------------------- Name: Mark K. Connelly Title: Senior Vice President By: /s/ Richard W. Wilbert ----------------------------------- Name: Richard W. Wilbert Title: Vice President MIZUHO CORPORATE BANK, LTD. By: /s/ Jun Shimmachi ----------------------------------- Name: Jun Shimmachi Title: Vice President HANOVER COMPRESSOR COMPANY AMENDMENT DATED AS OF DECEMBER __, 2003 COMERICA BANK /s/ William S. Rogers ---------------------------------------- By: William S. Rogers Its: Vice President CREDIT SUISSE FIRST BOSTON acting through its Cayman Islands Branch By: /s/ James P. Moran ----------------------------------- Name: James P. Moran Title: Director By: /s/ David J. Dodd ----------------------------------- Name: David J. Dodd Title: Associate WACHOVIA BANK, NATIONAL ASSOCIATION (Name of Lender) By: /s/ David Humphreys ----------------------------------- Name: David Humphreys Title: Vice President NATEXIS BANQUES POPULAIRES By: /s/ Timothy Polvado ----------------------------------- Name: Timothy Polvado Title: Vice President / Manager By: /s/ Louis P. Laville, III ------------------------------------ Name: Louis P. Laville, III Title: Vice President / Manager SUNTRUST BANK ---------------------------------------- (Name of Lender) By: /s/ Joe McCreery ------------------------------------- Name: Joe McCreery Title: Vice President Acknowledged and agreed to as of the date hereof: ENERGY TRANSFER -- HANOVER VENTURES L.P. GULF COAST DISMANTLING, INC. HANOVER ASIA, INC. HANOVER AUSTRALIA, L.L.C. HANOVER COLOMBIA LEASING, LLC HANOVER COMPRESSED NATURAL GAS SERVICES, LLC HANOVER COMPRESSOR NIGERIA, INC. HANOVER COMPRESSION GENERAL HOLDINGS, LLC HANOVER ECUADOR L.L.C. HANOVER GENERAL ENERGY TRANSFER, LLC HANOVER IDR, INC. HANOVER LIMITED ENERGY TRANSFER, LLC HANOVER MEASUREMENT, LLC HANOVER PARTNERS NIGERIA LLC HANOVER POWER, LLC HANOVER POWER (GATES), LLC HANOVER SPE, L.L.C. HANOVER/TRINIDAD, L.L.C. HC CAYMAN LLC HC LEASING, INC. HCC HOLDINGS, INC. HCL COLOMBIA, INC. KOG, INC. NIGERIAN LEASING, LLC SOUTHWEST INDUSTRIES, INC. By: /s/ John E. Jackson ---------------------------------------- Name: John E. Jackson Title: Vice President and Treasurer HANOVER HL HOLDINGS, LLC HANOVER HL, LLC By: /s/ Victoria L. Garrett ---------------------------------------- Name: Victoria L. Garrett Title: Manager ANNEX B PRICING GRID Participation Agreement
Consolidated Applicable Margin- Applicable Margin- Leverage Ratio Eurodollar Loans Base Rate Loans - -------------- ---------------- --------------- >4.0 to 1.0 3.50% 2.50% < or =4.0 to 1.0 and 3.00% 2.00% >3.0 to 1.0 < or =3.0 to 1.0 and 2.75% 1.75% >2.0 to 1.0 < or =2.0 to 1.0 2.50% 1.50%
Changes in the Applicable Margin resulting from changes in the Consolidated Leverage Ratio shall become effective on each date which is the start of the succeeding fiscal quarter (each, an "Adjustment Date") for which an Applicable Margin Certificate of Hanover is delivered to the Lenders pursuant to Section 10.2(f) of the Guarantee (but in any event not later than the 45th day after the end of each of each quarter of each fiscal year) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any Applicable Margin Certificate referred to above is not delivered within the time periods specified above, then the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 4.0 to 1.0. In addition, at all times while an Event of Default shall have occurred and be continuing, the highest rate set forth in each column of the Pricing Grid shall apply. Each determination of the Consolidated Leverage Ratio pursuant to this Pricing Grid shall be made for the periods and in the manner contemplated by Section 11.1(c) of the Guarantee. By:_________________________________ Title: EX-10.43 17 h12863exv10w43.txt AMEND.NO.1 TO AGREEMENT AND PLAN OF MERGER EXHIBIT 10.43 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is dated as of November 14, 2000 and is by and among Hanover Compressor Company, a Delaware corporation ("Parent"), Caddo Acquisition Corporation, an Oklahoma corporation and a direct, wholly owned subsidiary of Parent ("Merger Sub"), and OEC Compression Corporation, an Oklahoma corporation (the "Company"). Terms used and not defined herein shall have the meanings assigned to them in the Agreement and Plan of Merger dated as of July 13, 2000 by and among the Parent, Merger Sub and the Company (the "Merger Agreement"). RECITALS: A. Parent, Merger Sub and the Company entered into the Merger Agreement as of July 13, 2000; and B. Parent, Merger Sub and the Company desire to amend the Merger Agreement as set forth in this Amendment. AGREEMENT: NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Sub and the Company hereby agree as follows: 1. The second sentence of Section 3.2 of the Merger Agreement is amended to read in its entirety as follows: "As of the date hereof, (i) 37,060,776 shares of Company Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) 320,445 shares of Company Common Stock are held in the treasury of the Company or by Subsidiaries of the Company, and (iii) no shares of Company Preferred Stock are issued and outstanding." 2. Sections 5.11 and 6.3(g) of the Merger Agreement are deleted in their entirety. Parent and Merger Sub hereby waive any rights they may have as a result of the breach or non-fulfillment of the requirements of such Sections prior to the date of this Amendment. 3. Section 6.3(d) of the Merger Agreement is amended to read in its entirety as follows: (d) Absence of Certain Changes or Events. Since the date of this Agreement there shall not have been any event, development or change of circumstance that constitutes, has had, or, individually or in the aggregate, could be expected to have a Company Material Adverse Effect. Solely for purposes of this Section 6.3(d), a Company Material Adverse Effect shall have been deemed to occur only if it results from: (i) natural disasters or acts of God; (ii) war, terrorism or civil strife; (iii) criminal acts or civil fraud; or (iv) willful misconduct of the Company's officers. 4. Section 7.1(b) of the Merger Agreement is amended to read in its entirety as follows: (b) by either Parent or the Company if the Merger shall not have been consummated by March 1, 2001 (the "Outside Date"), provided that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date); or 5. The following is added as the last sentence of Section 8.3 of the Merger Agreement: "Knowledge" or "to the knowledge of" Parent or Merger Sub means the actual knowledge of Michael J. McGhan, William S. Goldberg and Charles A. Erwin. 6. As of the date of this Amendment, to the knowledge of Parent and Merger Sub, there has not been any event, development or change of circumstance that constitutes, has had, or, individually or in the aggregate, could be expected to have a Company Material Adverse Effect (as such term is used in Section 6.3(d) of the Merger Agreement, as amended by this Amendment). 7. As of the date of this Agreement, to the knowledge of Parent and Merger Sub, the Company has not breached any of the representations and warranties contained in Article III of the Merger Agreement. 8. The Merger Agreement, as amended by this Amendment, and all documents and instruments referred to in the Merger Agreement (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Section 5.12 of the Merger Agreement, are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder; provided that the Confidentiality Agreements shall remain in full force and effect until the Effective Time. 9. The laws of the State of Oklahoma shall govern the interpretation, validity and performance of the terms of this Amendment, regardless of the law that might be applied under principles of conflicts of law. 10. This Amendment may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been sighed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. [Remainder of this page intentionally left blank; Signature page follows] -2- IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment or caused this Amendment to be duly executed on its behalf by its officer thereunto duly authorized, as of the day and year first above written. HANOVER COMPRESSOR COMPANY a Delaware corporation By: /s/ Michael J. McGhan ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer CADDO ACQUISITION CORPORATION an Oklahoma corporation By: /s/ Michael J. McGhan ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer OEC COMPRESSION CORPORATION an Oklahoma corporation By: ------------------------------ Name: ----------------------------- Title: ---------------------------- IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment or caused this Amendment to be duly executed on its behalf by its officer thereunto duly authorized, as of the day and year first above written. HANOVER COMPRESSOR COMPANY a Delaware corporation By: ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer CADDO ACQUISITION CORPORATION an Oklahoma corporation By: ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer OEC COMPRESSION CORPORATION an Oklahoma corporation By: /s/ Ray Davis ------------------------------ Name: Ray Davis ----------------------------- Title: ---------------------------- EX-10.44 18 h12863exv10w44.txt AMEND.NO.2 TO AGREEMENT AND PLAN OF MERGER EXHIBIT 10.44 AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is dated as of February 2, 2001 and is by and among Hanover Compressor Company, a Delaware corporation ("Parent"), Caddo Acquisition Corporation, and Oklahoma corporation and a direct, wholly owned subsidiary of Parent ("Merger Sub"), and OEC Compression Corporation, an Oklahoma corporation (the "Company"). Terms used and not defined herein shall have the meanings assigned to them in the Agreement and Plan of Merger dated as of July 13, 2000 by and among the Parent, Merger Sub and the Company, as amended by Amendment No. 1 to Agreement and Plan of Merger dated as of November 14, 2000 (the "Merger Agreement"). RECITALS: --------- A. Parent, Merger Sub and the Company entered into the Merger Agreement as of July 13, 2000; B. Parent, Merger Sub and the Company previously amended the Merger Agreement as of November 14, 2000; and C. Parent, Merger Sub and the Company desire to further amend the Merger Agreement as set forth in the Amendment. AGREEMENT: ---------- NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Sub and the Company hereby agree as follows: 1. Section 7.1(b) of the Merger Agreement is amended to read in its entirety as follows: (b) by either Parent or the Company if the Merger shall not have been consummated by March 31, 2001 (the "Outside Date"), provided that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date); or 2. The Merger Agreement, as amended by this Amendment, and all documents and instruments referred to in the Merger Agreement (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Section 5.12 of the Merger Agreement, are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder; provided that the Confidentiality Agreement shall remain in full force and effect until the Effective Time. 3. The laws of the State of Oklahoma shall govern the interpretation, validity and performance of the terms of this Amendment, regardless of the law that might be applied under principles of conflicts of law. 4. This Amendment may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. [Remainder of this page intentionally left blank; Signature page follows] -2- IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment or caused this Amendment to be duly executed on its behalf by its officer thereunto duly authorized, as of the day and year first above written. HANOVER COMPRESSOR COMPANY a Delaware corporation By: /s/ Michael J. McGhan ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer CADDO ACQUISITION CORPORATION an Oklahoma corporation By: /s/ Michael J. McGhan ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer OEC COMPRESSION CORPORATION an Oklahoma corporation By: ------------------------------ Name: ----------------------------- Title: ---------------------------- IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment or caused this Amendment to be duly executed on its behalf by its officer thereunto duly authorized, as of the day and year first above written. HANOVER COMPRESSOR COMPANY a Delaware corporation By: ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer CADDO ACQUISITION CORPORATION an Oklahoma corporation By: ------------------------------ Name: Michael J. McGhan Title: Chief Executive Officer OEC COMPRESSION CORPORATION an Oklahoma corporation By: /s/ Ray Davis ------------------------------ Name: Ray Davis ----------------------------- Title: ---------------------------- EX-10.74 19 h12863exv10w74.txt SEPARATION AGREEMENT WITH MARK BERG EXHIBIT 10.74 February 27, 2004 VIA HAND DELIVERY Mark S. Berg Senior Vice President and General Counsel Hanover Compressor Company 12001 North Houston Rosslyn Houston, Texas 77086 Re: Separation Agreement and General Release (the "Agreement") Dear Mark: This letter sets forth the agreement between you and Hanover Compressor Company ("Hanover" or the "Company") in connection with your determination to leave the Company and cease to serve as Senior Vice President, General Counsel, and Secretary of the Company. 1. Preamble: a. On behalf of Hanover's Board of Directors, I wish to express our appreciation for the professionalism, leadership, and focus with which you performed your responsibilities including your great efforts in helping bring about the successful resolution of our shareholder litigation and a successful settlement with the Securities and Exchange Commission. b. Hanover acknowledges that as Senior Vice President, General Counsel, and Secretary, you provided invaluable services to Hanover at a critical time in the Company's history and that Hanover has benefited from your services. c. Hanover acknowledges that because of these services, the Company will continue to benefit in the future. d. Hanover acknowledges that you have determined that it is in your best interest to resign from Hanover and that your resignation from Hanover is voluntary. e. Hanover's Board of Directors wishes you the best of luck in your future endeavors. Mark S. Berg February 27, 2004 Page 2 2. Separation Date: Your employment with the Company will cease on March 31, 2004 (the "Separation Date") or such other date as you and the Company shall mutually agree. 3. Payments and Compensation: a. 2003 Bonus Payment: In exchange for your past performance, Hanover will pay you a Bonus for 2003 in the amount of $260,100 (which is 85% of your base salary ("Base Salary") of $306,000). b. In consideration of this Agreement becoming effective, Hanover will: i. pay to you in a lump sum $351,900 (which is 115% of your Base Salary); ii. provide to you health insurance benefits for you and your family substantially similar to those benefits provided to you at the Separation Date and at the cost to you incurred at the Separation Date until the earlier of (1) one year following the Separation Date, or (2) the date you are given an opportunity to receive substantially similar health insurance from a new employer; provided that such benefits can be modified if Hanover modifies its health plan or plans for similarly covered active employees; provided further that the Company shall give to you the opportunity to obtain benefits through COBRA after the expiration of the benefits provided for in this paragraph. iii. reimburse appropriate outstanding requests for expense reimbursements, as well as any reasonable and appropriate reimbursement requests made after the Separation Date which shall be paid promptly after receipt; and iv. correct any errors in past pay checks (including payment of any funds owing) and to make appropriate corrections to your W-2 form. c. All Payments set forth in this Paragraph shall be made on or before the Separation Date except as provided in subparagraph (b)(iii) hereof. d. After your Separation Date you shall no longer be eligible to participate in or accumulate any credit under any provision of any Hanover retirement plan. Mark S. Berg February 27, 2004 Page 3 4. For a period of six (6) months or such shorter period as you may, in good faith, elect (if, for example, you become employed elsewhere), you will be available to provide consulting services to Hanover at such reasonable times and in such reasonable, incidental amounts as you and Hanover shall mutually agree at no cost to Hanover beyond the payments set out above in Paragraph 3, above; provided that should Hanover require more than incidental amounts of time, as agreed between you and Hanover, you and Hanover shall mutually agree on further compensation for your services in addition to the payments described above. 5. Without the prior written consent of Hanover, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, you shall continue to comply with Hanover's policies regarding confidential information and, moreover, shall not disclose any trade secrets, customer lists, marketing plans and related information, management organization and related information (including data and other information related to members of the Board and management), operating policies and manuals, business plans and related information, financial records and information or other commercial, business or technical information related to Hanover or its subsidiaries and affiliates to any third person unless such information has been previously disclosed to the public by Hanover or has become public knowledge other than by a breach of this Agreement. In the event you become self-employed or enter into a joint employment arrangement, you shall not use any such information for such business. 6. The terms and provisions of your previous employment agreement with Hanover shall be null and void. 7. Except as otherwise provided herein, no equipment or materials or property owned by Hanover or you shall be transferred between you and Hanover. You agree that, on or prior to the Separation Date, you will return or relinquish all Hanover credit cards, computers (including all files saved thereon), office space, furniture, equipment, files (except publicly available information or documents that formed the basis of such information), books, and other company equipment, materials or property in your possession. You are entitled to all of your personal property that is currently on Hanover premises, including office furniture and furnishings, and Hanover agrees to return and relinquish the same. 8. In partial exchange for the consideration provided for in this Agreement, you for yourself, and your heirs, executors, administrators and assigns (collectively, the "Releasors") forever waive, release and discharge Hanover and its parent, subsidiaries, affiliates, successors and assigns, past and present officers, directors, employees and agents, and any fiduciaries of any employee benefit plan or policy Mark S. Berg February 27, 2004 Page 4 of Hanover (collectively, the "Releasees"), from any and all claims, demands, causes of actions, fees and liabilities and expenses (inclusive of attorneys' fees) of any kind whatsoever, whether known or unknown, which you ever had or now have against the Releasees by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence, or other matter up to and including the date of your execution of this Agreement, including, but not limited to (a) any claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Sections 1981, 1985 & 1986, the Age Discrimination in Employment Act (ADEA), as amended, the Americans with Disabilities Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act of 1974, the Civil Rights Act of 1991, as amended, and/or any other Federal, state or local law (statutory or decisional), regulation, or ordinance, and (b) any tort and/or contract claims, including any claims of wrongful discharge, defamation, emotional distress, nonphysical injury, personal injury or sickness or other harm. This release does not apply to obligations undertaken by this Agreement or under the terms and conditions of any employee benefit plan (including any plan under which you have been afforded stock options and/or restricted stock) program or arrangement (other than any such plan, program or arrangement providing severance benefits) in which you are a participant or are eligible to participant in on the separation date. 9. Hanover forever waives, releases and discharges you and your heirs, executors, administrators and assigns from any and all claims, demands, causes of actions, fees and liabilities and expenses (inclusive of attorneys' fees) of any kind whatsoever, whether known or unknown, which Hanover ever had or now has against you by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence, or other matter up to and including the date of execution of this Agreement, including, but not limited to (a) any Federal, state or local law (statutory or decisional), regulation, or ordinance, and (b) any tort and/or contract claims. This release does not apply to obligations undertaken by this Agreement. 10. The above release in Paragraph 8 notwithstanding, it is expressly agreed that (i) you are entitled to receive and are not releasing and do not release or waive any right to indemnification to the fullest extent permitted by Delaware law with respect to all activities undertaken by you for Hanover and its subsidiaries and affiliates (including, but not limited to, your service as an officer and/or director of Hanover or its subsidiaries or affiliates and your service on the management committee of Hanover Measurement Services Company, L.P.) and (ii) to the extent that Hanover (or any successor to Hanover) maintains coverage for directors and officers, you shall be covered for acts undertaken by you on behalf of Hanover and its affiliates and subsidiaries prior to your Separation Date. Mark S. Berg February 27, 2004 Page 5 11. You agree, that until December 31, 2004, you will not provide services as an employee consultant, advisor, partner or member of any entity whose primary business is directly competitive with that of the Hanover's or any subsidiary of Hanover ("Competitor") with regard to the natural gas services business ("Competitive Services"); provided, however, that this covenant will not (a) restrict you from providing services to any Competitor if such services are provided to a line of business of the Competitor that is not Competitive Services; (b) not prohibit you from entering into the private practice of law or providing legal services to a Competitor so long as in connection with the provision of such services you do not disclose or otherwise use any confidential or proprietary information of Hanover (as defined in paragraph 5, above); or (c) restrict your ability to arrange or provide financing or investments through third-parties (other than in connection with direct competitors of the Company) that relate to or involve Competitive Services. Hanover will have all rights and remedies available to it at law and in equity to assure your compliance with this covenant and to remedy any breach thereof. 12. You agree to pay federal and state taxes, if any, that you are required by law to pay with respect to this Agreement. If you fail to pay any required taxes with respect to this Agreement, you agree to indemnify and hold Hanover harmless from any claims, demands, deficiencies, levies, assessments, penalties or recoveries by any government or entity against you for any amounts claimed due on account of your failure to pay any required taxes with respect to the amounts designated in this Agreement. 13. You acknowledge that you have been advised by Hanover to consult an attorney before signing this Agreement and that you have executed this Agreement with the waivers and releases set forth above, after having had the opportunity to consult with an attorney and after having had the opportunity to consider the terms of this Agreement for twenty-one (21) days after such terms were proposed to you, provided that nothing contained herein shall prevent you from signing this Agreement within 21 days of when these terms were proposed to you. You further acknowledge that: you have read this Agreement in its entirety; you understand all of its terms; you knowingly and voluntarily assent to all of the terms and conditions contained herein including, without limitation, the waivers and releases; you are executing this Agreement, including the waivers and releases, in exchange for consideration in addition to anything of value to which you are already entitled; you are not waiving or releasing rights or claims that may arise after your execution of this Agreement; and that you understand that the waivers and releases in this Agreement is being requested in connection with the cessation of your employment with Hanover and in exchange for your receipt of consideration to which you otherwise would not be entitled. Mark S. Berg February 27, 2004 Page 6 14. This Agreement, including the waivers and releases contained herein, shall become effective the eighth (8th) day following your execution of this Agreement and you may at any time prior to the effective date revoke this Agreement by giving written notice of such revocation to Chad C. Deaton. 15. Both you and Hanover acknowledge that material to the inducement to enter into this Agreement are the waivers and releases and the covenants set forth herein. 16. If any provision of this Agreement is determined by a court of competent jurisdiction not to be enforceable in the manner set forth in this Agreement, Hanover and you agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such provision shall be reformed to make it enforceable in accordance with the intent of the parties. 17. This Agreement shall be binding upon and inure to the benefit of the heirs, trustees, executors, administrators, successors and assigns of the respective parties. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute the same instrument. 18. This Agreement shall be governed by and subject to the laws of the State of Texas without giving effect to conflict of law rules. 19. You understand that Hanover's obligations to make payments hereunder are unfunded and that claims for payments by you or any beneficiary shall be those of a general, unsecured creditor. The payments provided hereunder shall be subject to withholding in accordance with applicable federal, state, or local law. 20. Prior to the date of this agreement, Hanover and you have agreed to a press release which is attached. Hanover will not make any public disclosure regarding you or your employment with the Company without providing you a chance to comment on any such disclosure. You will not make any public disclosure regarding Hanover or your employment with Hanover without providing the Company a chance to comment on any such disclosure. 21. This Agreement contains a complete statement of all the arrangements between you and Hanover with respect to your employment and the cessation of your employment. This Agreement may not be changed orally. No other promises or agreements shall be binding unless in writing and signed by Hanover and you. Further, this Agreement supercedes and extinguishes any prior understandings or written or oral agreements between the parties including, but not limited to your Mark S. Berg February 27, 2004 Page 7 employment agreement. There have been no promises between the parties beyond those reflected in this Agreement. Except as otherwise specifically provided herein, notices and other communications provided for herein shall be in writing and shall be hand delivered or mailed. Mark S. Berg February 27, 2004 Page 8 If this letter correctly sets forth our agreement, please execute a counterpart copy where indicated below. Sincerely yours, Hanover Compressor Company By: /s/ Chad C. Deaton ---------------------------------- Chad C. Deaton President and Chief Executive Officer Dated: February 27, 2004 ------------------------------- ACCEPTED AND AGREED TO /s/ Mark S. Berg - ----------------------------- Mark S. Berg Dated: February 27, 2004 ----------------------- EX-12.1 20 h12863exv12w1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 HANOVER COMPRESSOR COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT RATIO AMOUNTS)
YEAR ENDED DECEMBER 31, --------------------------------------------------- 2003(1) 2002(2) 2001 2000 1999 --------- -------- -------- -------- -------- Earnings: Income (loss) from continuing operations before income taxes.............. $(107,766) $(92,419) $112,000 $ 74,948 $ 60,463 Add: Interest on indebtedness and amortization of capitalized interest, debt expense and discount ................................................... 85,524 40,453 31,760 15,110 9,115 Leasing expense and the estimated interest factor attributable to rents... 49,881 96,863 71,347 46,132 22,486 Equity in income of non-consolidated affiliates in excess of distributions of income................................................. (4,637) (2,223) (9,350) (3,518) (1,188) --------- -------- -------- -------- -------- Earnings (loss) as adjusted............................................ $ 23,002 $ 42,674 $205,757 $132,672 $ 90,876 ========= ======== ======== ======== ======== Fixed charges: Interest on indebtedness, amortization of debt expense and discount and $ 86,033 $ 42,577 $ 34,250 $ 16,871 $ 10,597 capitalized interest.................................................... Leasing expense and the estimated interest factor attributable to rents... 49,881 96,863 71,347 46,132 22,486 --------- -------- -------- -------- -------- Total fixed charges.................................................... $ 135,914 $139,440 $105,597 $ 63,003 $ 33,083 ========= ======== ======== ======== ======== Ratio of earnings to fixed charges........................................ -- -- 1.95 2.11 2.75 ========= ======== ======== ======== ========
- -------------- (1) Due to Hanover's loss for the year ended December 31, 2003, the ratio was less than 1:1. Hanover would have had to generate additional pre-tax earnings of $112.9 million to achieve coverage of 1:1. During the year, we recorded $250.6 million in pre-tax charges. For a description of these pre-tax charges, see footnote 21 in the notes to the consolidated financial statements included in Hanover's Annual Report on Form 10-K for the year ended December 31, 2003. (2) Due to Hanover's loss for the year ended December 31, 2002, the ratio was less than 1:1. Hanover would have had to generate additional pre-tax earnings of $96.8 million to achieve coverage of 1:1. During 2002, we recorded $182.7 million in pre-tax charges. For a description of these pre-tax charges, see footnote 27 in the notes to the consolidated financial statements included in Hanover's Annual Report on Form 10-K for the year ended December 31, 2002. EX-14.1 21 h12863exv14w1.txt GUIDE TO ETHICAL BUSINESS CONDUCT EXHIBIT 14.1 P.R.I.D.E. IN PERFORMANCE HANOVER'S GUIDE TO ETHICAL BUSINESS CONDUCT [PICTURE] HANOVER'S VALUES PEOPLE Our business is driven by people. We succeed based on our relationships with employees, customers, partners, suppliers, communities and shareholders. We maintain a safe workplace for our employees, and as a good corporate citizen, we are dedicated to protecting the environment. RETURN We strive to maximize return on our resources and assets through careful capital management, well-reasoned risk taking, and the establishment of long-term goals for consistent growth and profitability. INTEGRITY Integrity and honorable behavior are an integral part of our values. Our success will be realized only through honesty and the highest ethical standards in all aspects of our business. DIVERSITY We are an international company. Diversity among our workforce and our clients creates unique opportunities in forming partnerships and ultimately, contributes to our success. ENTREPRENEURIAL SPIRIT We are driven by an entrepreneurial spirit that is strengthened by teamwork and harnessed through a disciplined approach. We have a can-do attitude and continually earn our reputation for outstanding customer service. CHAD C. DEATON President and Chief Executive Officer [THE HANOVER COMPANY LOGO] January 1, 2003 To All Hanover Employees: At Hanover, we use good judgment and conduct our business according to our values of P.R.I.D.E. - People, Return, Integrity, Diversity, and Entrepreneurial Spirit. What is the foundation for good judgment in business? It begins with a personal commitment to do the right thing. Exercising good judgment means understanding the ground rules. P.R.I.D.E. in Performance - Hanover's Guide to Ethical Business Conduct sets forth key company policies in clear terms. Your management team has renewed its commitment to integrity. It is imperative that each member of the Hanover organization join in this commitment. Our cooperative effort will ensure the continued growth and success of each of us as individuals and collectively as a leader in surface production and compression products and services. P.R.I.D.E. in Performance contains policies that will assist you in understanding our responsibilities under the law and under our code of ethics. This guide also includes information on how to obtain additional assistance, if needed. Hanover has built its business on a reputation for exceptional service and as an industry-leading solutions provider. We will continue that tradition, coupled with an unqualified commitment to operating with the highest degree of integrity. The future of our company depends on it. With that in mind, please review this guide carefully and refer to it whenever a question of standards or conduct arises. Thank you for taking pride in Hanover's performance. COMMITMENT TO INTEGRITY Hanover people behave honorably and act at all times with unquestioned integrity. Our success will be realized only through honesty and the highest ethical standards in all aspects of our business. TO LIVE UP TO THE HIGHEST ETHICAL STANDARDS, WE MAKE THE FOLLOWING COMMITMENT TO OUR CUSTOMERS, EMPLOYEES, PARTNERS AND SHAREHOLDERS Our business is driven by people. While our company may be large and our business complex, people are at the heart of everything we do. We value the faith that is placed in us and we will work continuously to earn that trust. We treat people with respect and dignity and in an honest, straightforward and fair manner - just as each of us would like to be treated. We are guided by our conscience and common sense and will not proceed with any course of action unless we can truthfully answer `yes' to each of the follow questions: - Are my actions consistent with the letter and spirit of the law? - Have I made sure not to promise more than I can deliver - will I be able to keep my word? - Have I provided sufficient, accurate information to allow for a fair decision - have I avoided misleading the party with whom I am dealing? - Would my action be consistent with my own standards of ethics? - Would my conduct set a good example - would I like my colleagues to follow my lead? - Would I be comfortable discussing and explaining my decision to family and friends? - Would I feel proud of myself if my actions were reported on the front page of the local newspaper? [THE HANOVER COMPANY LOGO] HANOVER GUIDE TO ETHICAL BUSINESS CONDUCT TABLE OF CONTENTS Introduction....................................................................................... 2 Your Responsibility............................................................................. 2 Our Framework for Corporate Responsibility...................................................... 3 Where Can I Obtain Further Guidance?............................................................ 3 The Hanover Workplace.............................................................................. 5 Overview........................................................................................ 5 Open Door Policy................................................................................ 5 Health, Safety and Environment.................................................................. 5 Equal Employment Opportunity.................................................................... 6 Policy Against Harassment....................................................................... 6 Employment of Former and Current Government Officials........................................... 7 Employment of Eligible Individuals.............................................................. 7 Drug and Alcohol Use............................................................................ 7 No Solicitation/No Distribution Policy.......................................................... 8 Your Relationship With Hanover..................................................................... 9 Overview........................................................................................ 9 Avoiding Conflicts of Interest.................................................................. 9 "Inside Information" and Securities Trading Activities.......................................... 10 Safeguarding Company Property................................................................... 13 Use of Company Equipment and Systems............................................................ 13 Use, Handling and Protection of Company Information............................................. 15 Special Rules for Financial Information......................................................... 17 Business Transactions and Contract Administration............................................... 18 Political Activities and Contributions.......................................................... 18 Hanover's Relationship With Others................................................................. 20 Overview........................................................................................ 20 Fair Competition................................................................................ 20 Use of Copyrighted and Other Protected Material................................................. 21 Government Contracts............................................................................ 22 Gifts, Bribery, and Improper Payments........................................................... 22 Selection of Representatives.................................................................... 23 International Business and Trade................................................................ 23 Administration..................................................................................... 25 Interpretation.................................................................................. 25 Policy Administration........................................................................... 25 Compliance with the Guide....................................................................... 25 Distribution.................................................................................... 26 Questions and Answers.............................................................................. 27 The Corporate Responsibility Program............................................................ 27 Avoiding Conflicts of Interest.................................................................. 27 Inside Information and Securities Trading Activities............................................ 28 Safeguarding Company Property................................................................... 29 Fair Competition................................................................................ 29 Political Activities and Contributions.......................................................... 29 Employment Issues............................................................................... 30 Company Contacts................................................................................... 31

1 INTRODUCTION Hanover (or the "Company") has grown rapidly and enjoyed great success because of the entrepreneurial sprit of our people. This spirit has enabled Hanover to grow from a small start up to an international leader in natural gas compression services, compression fabrication and processing, and oil and gas production equipment. Hanover's success is dependent on the concerted efforts of all of its people, pulling together toward a common goal. This requires a two way commitment: Hanover's employees should be committed to give 100% effort while Hanover is committed to provide the tools necessary to achieve success and trust its employees to act in a manner consistent with the best interests of the Company and its shareholders, employees and customers. Hanover believes that by trusting individuals to exercise their own best judgment, individuals can be more productive and will ultimately achieve greater success for the Company. Our trust is based on one overriding policy -- that Hanover people act ethically, safely and in a manner consistent with Hanover's values. With individual empowerment comes the need for individuals to assume personal responsibility for their actions and to act professionally as custodians for the trust placed in the Company by our customers and shareholders. To assist individuals in living up to their own high standards and those of the Company, this introduction reviews the standards of professionalism expected of all individuals and describes the framework that the Company has put into place to assist you in putting our value of integrity into action. We believe that given appropriate training, guidance and opportunity, individuals will make the correct choices. The first section of this guide, "The Hanover Workplace," sets out the Company's policies relating to the fair treatment of all employees in the workplace, including the Company's open door policy and its policies on equal employment opportunities. Section Two, "Your Relationship With Hanover," discusses the policies that help employees avoid conflicts of interest and inappropriate use of Company resources. Section Three, "Hanover's Relationship With Others" discusses the policies relating to fair competition and conducting business in a manner consistent with high standards of business ethics and applicable laws. Section Four, "Administration," discusses the role of employees in upholding these policies and the consequences of violations. At the back of the Guide, you will find a list of key contacts and the answers to frequently asked questions. YOUR RESPONSIBILITY Each employee, officer and director should conduct all aspects of the Company's business consistent with the highest standards of ethics and integrity, and in a manner that is consistent with applicable law. All employees, officers and directors should follow these standards in all their business dealings including those with customers, distributors, the general public, and other employees. Any employee in a supervisory role is responsible for the conduct of employees reporting to him or her. It is the policy of Hanover that its employees shall not participate in or condone criminal or unethical activity directly or indirectly, in any form. All employees should promptly report any 2 suspected unethical or illegal activity to their supervisors. In addition, employees who break the law will be subject to discipline, up to and including termination. Employees should always cooperate fully in any investigation of misconduct. Hanover does not tolerate retribution against employees who, in good faith, report suspected violations of law. Employees who retaliate against others who report suspected crimes or wrongs are themselves subject to discipline. OUR FRAMEWORK FOR CORPORATE RESPONSIBILITY Integrity is not only one of the Company's core values, it is one of the keys to our success. By operating with integrity, Hanover and its people will be respected and will find others eager to partner with the Company. Of course, integrity and respect must be earned with each transaction, each day with each customer. Company management and our board of directors are fully committed to transparency and good corporate governance. We will not tolerate inappropriate or illegal behavior. We will also endeavor to provide sufficient resources so that the Company can perform necessary functions consistent with the law and the highest ethical standards and that resources are available so that individuals are made aware of the rules and how to follow them. Management will establish appropriate internal controls and disclosure controls and procedures to protect the integrity of the Company's financial statements and periodic reports filed with the SEC, but also to allow for more efficient and effective operations and management. WHERE CAN I OBTAIN FURTHER GUIDANCE? You have several alternatives for obtaining guidance if you have a question regarding your own obligations or conduct or the conduct of a colleague or supervisor. You are encouraged to first raise issues with your supervisor. We believe that raising and resolving issues with your immediate supervisor fosters straightforward communication and can build productive teamwork. For their part, supervisors are expected to take seriously and address promptly issues raised by employees. We understand that there may be circumstances where it is uncomfortable or inappropriate to raise issues with your supervisor. In these situations, you are encouraged to speak with others in management or to contact either the Human Resources or Legal Department in our corporate offices. For your convenient reference, a list of contact numbers and addresses is provided at the end of this Guide. You are also free to ask questions or report potentially improper conduct through the Company's toll-free number 1-800-281-5439. Hanover will endeavor, within the limit of the law, to maintain the confidentiality of the identity of any individual who reports possible misconduct. You should feel free to report any potentially improper conduct without fear of reprisal or adverse action. Anyone who deliberately makes a false accusation with the purpose of harming or retaliating against another colleague may be subject to discipline. If you have any complaints or concerns regarding accounting or auditing matters or other matters regarding the CEO, senior management or the Company's public disclosures to shareholders, in addition to the alternatives for obtaining guidance that are outlined above, you may submit a confidential, anonymous written statement to the Audit Committee of Hanover's Board of 3 Directors by submitting a copy addressed to the Chairman of the Audit Committee with your complaint or concern, forwarded care of the General Counsel's office. Hanover is committed to promptly investigate all reported concerns and to take any appropriate action. Individuals who are found to have violated the law or Company policies may be subject to discipline that includes a warning, reprimand, loss of all or part of performance compensation or other privileges, suspension, or termination. 4 THE HANOVER WORKPLACE OVERVIEW Hanover values diversity among its employees, recognizing that diversity enriches our Company and is essential to creativity in business and personal growth. Further, Hanover expects that each employee, officer and director will endeavor to deal fairly with the Company's employees. No one should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of facts, or any other unfair dealing. In accordance with applicable law and our values, Hanover has developed the following employment policies relating to the fair treatment of employees. If you have questions or concerns regarding any of the policies outlined in this section, please feel free to contact your supervisor, others in management or the Human Resources Department. OPEN DOOR POLICY Hanover strongly believes in an open door, open communication policy. Employees are invited to approach their supervisors and, as might be necessary and appropriate, other Company officials in order to discuss issues of concern to the individual and the Company. We believe that this policy improves the overall productivity of the Company, enhances teamwork, and contributes to the satisfaction that each of us derives from our work. We also believe that this policy will provide a useful vehicle for surfacing and discussing issues, allowing any such matters to be resolved quickly and efficiently, and avoid the harm caused by unattended problems. Employees should always consider raising issues or concerns with their immediate supervisors who are typically best positioned to address such matters. However, if this is inappropriate, either because your concerns pertain to your immediate supervisor or because your immediate supervisor is not able to address your workplace issues, then you are free to contact more senior levels of management. Issues of special concern, or that an employee believes cannot be appropriately addressed within the employee's department, can be brought to the attention of the Human Resources Department. In addition, issues that an employee believes cannot be effectively raised or addressed through the Human Resources Department can be raised through the Company's toll-free number at 1-800-281-5439. HEALTH, SAFETY AND ENVIRONMENT Hanover is committed to protecting the safety and health of our employees and to environmental stewardship around the world. The Company views its health, safety and environmental policies as a competitive advantage and strives for continuous improvement in these areas. Working together, we can ensure that we protect our environment and efficiently use resources to provide for a better tomorrow for our children. It is Hanover's policy to comply with both the letter and the spirit of health, safety and environmental laws and regulations in both its U.S. and international operations. To this end, we should endeavor to see that the properties that we own or manage fully comply with applicable legal standards and that our practices for waste disposal and the handling of hazardous materials 5 are consistent with legal requirements. In helping Hanover comply with applicable laws and regulations, you should understand how your job duties impact the environment, adhere to all environmental laws and related Hanover policies, and immediately report any violation of environmental laws or any action that may appear to conceal a violation to the Health, Safety and Environment Department. No Hanover employee knowingly will be required to work in an unsafe manner or place. Likewise, employees also have a responsibility to provide their co-workers with a safe work environment, to carry out their duties in a safe fashion, to limit the possibility of accidents, to report any accidents that occur, and to refrain from bringing any dangerous objects or weapons into the workplace. Employees should report to the Health, Safety and Environment Department conditions that they perceive to be unsafe or unhealthy. Hanover will not tolerate retaliation in any form against complainants, individuals who report the possible existence of safety or health issues, or witnesses who assist in the Company's investigation. EQUAL EMPLOYMENT OPPORTUNITY The Company is committed to complying with all laws and regulations regarding equal employment opportunities so that all employees and candidates for employment are afforded fair and equal treatment. This commitment means that Hanover will recruit, hire, train, terminate, transfer, pay, and promote individuals, as well as administer all personnel actions, without regard to race, color, religion, age, gender, national origin, disability, or veteran status. Hanover will not tolerate any unlawful discrimination or harassment based upon race, color, religion, age, gender, national origin, disability, or veteran status, and any such conduct is strictly prohibited. Consistent with this policy and applicable law, Hanover will make reasonable accommodations to the known limitations of qualified applicants or employees, unless to do so would impose an undue hardship on the operation of our business or cause a threat to anyone's safety. Complaint Procedure. If you have experienced discriminatory conduct or observe another employee experiencing discriminatory conduct, you should, to the extent that you feel comfortable, tell the person that you perceive that the behavior is discriminatory. If you cannot resolve the issue, or you feel uncomfortable doing so, contact the Human Resources Department immediately. Complaints of discrimination are investigated promptly. Hanover will not tolerate retaliation in any form against complainants, individuals who report the possible existence of discrimination against others, or witnesses who assist in the Company's investigation. POLICY AGAINST HARASSMENT Hanover is committed to providing a work environment that is free from discriminatory intimidation or harassment. Harassment is defined as behavior that is offensive to others based upon race, color, religion, age, gender, national origin, disability, or veteran status, and which interferes with an employee's work performance or creates an intimidating, hostile, or offensive work environment. It also applies to situations where submission to inappropriate conduct is made a term or condition of employment or where submission to or rejection of such conduct is used as a basis for employment decisions. Examples of discriminatory harassment include unwelcome sexual advances, uninvited suggestive remarks, sexist, racist or religious slurs, and ethnic jokes. Hanover will not tolerate any discriminatory harassment, and any such conduct is strictly prohibited. It is your responsibility to help maintain a harassment-free environment. Complaint Procedure. If you have experienced discriminatory harassment or observe another employee experiencing discriminatory harassment, you should, to the extent that you feel 6 comfortable, tell the person to stop. If you cannot resolve the issue, or you feel uncomfortable attempting to do so, contact the Human Resources Department immediately. Complaints of harassment are investigated promptly. Hanover will not tolerate retaliation in any form against complainants, individuals who report the possible existence of harassment against others, or witnesses who assist in the Company's investigation. EMPLOYMENT OF FORMER AND CURRENT GOVERNMENT OFFICIALS U.S. federal and state laws and regulations and the laws of many foreign countries govern the recruitment and employment of current and former government officials or members of their immediate families. If a former government official wishes to become employed by, or a consultant to Hanover, care should be exercised to ensure that applicable laws are not violated. Before an employee takes any action to discuss potential employment with a current or former government official, that employee should consult with the Human Resources Department. In addition, if a former government official becomes a consultant or employee of Hanover, care should be taken to ensure that the scope of his or her duties is consistent with applicable legal restrictions. EMPLOYMENT OF ELIGIBLE INDIVIDUALS It is the policy of Hanover to hire and employ only those individuals who are lawfully authorized for unsponsored employment in the countries in which Hanover operates and to follow all immigration laws and regulations. In its U.S. operations, Hanover generally does not assist or sponsor individuals in obtaining or extending employment authorizations. In connection with federal immigration laws, we should collect certain information and review certain documentation concerning the employment and authorization of new employees. This information and documentation will be used only for compliance with applicable federal immigration laws and will not be used for employment-related decisions other than verifying eligibility. If your eligibility to work in the United States changes or terminates after you begin work at the Company, please promptly inform the Human Resources Department. DRUG AND ALCOHOL USE Substance abuse and the excessive consumption of alcohol reduce the ability of an employee to function appropriately and impede the ability of Hanover to provide a safe work environment for all employees. Therefore, Hanover complies with applicable laws and regulations and strives to maintain a work environment that is free from substance abuse and the influence of alcohol. Hanover prohibits its employees from possessing, selling, purchasing, manufacturing, distributing, or using illegal drugs in the workplace. In addition, Hanover prohibits its employees from consuming alcohol at work (except for the moderate use of alcohol at Company sponsored events or functions) and from working under the influence of drugs (including prescription drugs) or alcohol. Employees with questions or concerns about substance dependency or abuse are encouraged to use the resources of the Employee Assistance Program where available. They may also wish to discuss these matters with their supervisor or the Human Resources Director to receive assistance or referrals to appropriate resources in the community. Employees with drug or alcohol problems that have not resulted in, and are not the immediate 7 subject of, disciplinary action may request approval to take paid (if available) or unpaid time off to participate in a rehabilitation or treatment program through Hanover's health insurance benefit coverage. Leave may be granted if the employee agrees to abstain from use of the problem substance; abides by all of Hanover's policies, rules, and prohibitions relating to conduct in the workplace; and if granting the leave will not cause Hanover any undue hardship. Employees with questions on Hanover's policy or issues related to drug or alcohol use in the workplace should raise their concerns with their supervisor or the Human Resources Director without fear of reprisal. To help ensure a safe and healthful working environment, Hanover's drug and alcohol policies provide for drug and alcohol testing consistent with Department of Transportation regulations for certain covered jobs and also provide for pre-employment drug testing, random drug-testing, drug or alcohol testing upon reasonable suspicion, drug and alcohol testing following work-related accidents or injuries, and drug and alcohol testing in other situations consistent with applicable law. Employees may be randomly asked to provide urine or hair samples to determine the unauthorized or illegal use of drugs, and may be asked to supply a breath, blood, urine or hair sample if the company suspects the employee is using drugs or alcohol or under the influence of drugs or alcohol. Refusal to submit to such drug or alcohol testing, or avoiding or sabotaging the testing, may result in disciplinary action, up to and including termination of employment. Please be aware that you do not have any personal right of privacy as to any of Hanover's facilities, offices, property or vehicles. Hanover's facilities and equipment are subject to search at any time, in furtherance of the drug and alcohol policies. Copies of the drug and alcohol policies will be available to all employees. Questions concerning the policies or their administration should be directed to your immediate supervisor or the Human Resources Department. NO SOLICITATION/NO DISTRIBUTION POLICY In the interest of maintaining a positive working atmosphere, Hanover limits employee solicitation and the distribution of literature to pre-approved activities, such as United Way campaigns and blood drives. No employee may solicit another employee for any purpose that is not pre-approved during the work time of either employee. The distribution of handbills or other literature in work areas that is not pre-approved is forbidden. Persons who are not employed by Hanover are prohibited from soliciting any employee or distributing literature on Company premises or at employee work locations at any time. 8 YOUR RELATIONSHIP WITH HANOVER OVERVIEW Each of us has been entrusted with an important role in helping Hanover become a great company. The standards set out in this section require that we honor that trust by conducting our business activities in the best interest of Hanover and by avoiding personal activities that conflict with the interests of the Company. AVOIDING CONFLICTS OF INTEREST The Company's policy regarding conflicts of interest is applicable to all employees. In recognition of the special duties of management, officers and directors of Hanover are required to review and sign the directors and officers questionnaire at least annually and return it to the Legal Department. All employees of Hanover will be required to list all potential conflicts or state that no conflicts exist at the time of employment. If any arise after signing that document, the Legal Department and the Human Resources Department should be informed. We should all avoid putting our interests in conflict with those of the Company. A conflict of interest arises when an employee's personal interests or activities impair, or appear to impair, the employee's ability to act in the best interest of Hanover. In reviewing the guidelines included below, remember that no set of rules can address every situation that may be faced by employees. Rather, use your best judgment to act in accordance with the Company's Guide of ethics, avoid situations in which your loyalty may become divided, and act appropriately when a potential conflict presents itself. If you are uncertain about your conduct in a particular situation, consult your supervisor, others in management or the Human Resources or Legal Departments. Gifts and Gratuities. Neither you nor any member of your immediate family are permitted to accept, directly or through another person or entity, any money, gifts (such as meals, entertainment, personal computers, or other items of value), business opportunities, or preferential treatment if it will influence, or reasonably appear to influence, your ability to be objective in making a business decision. You may only accept business-related meals, entertainment, gifts, or favors when acceptance could not reasonably be viewed as placing you under any obligation to the giver or otherwise compromise the independence of your judgment. If an employee receives a gift that does not fall in the nominal category, he or she must report it to his or her supervisor and return the gift. If return of the gift is not practical, it should be given to the Company for charitable use or such other disposition as the Company feels appropriate. You also should not give or offer excessive gifts or entertainment to others whose business the Company may be seeking. If you have any doubt as to the propriety of giving or receiving any gift, you should consult your supervisor. Outside Business Activities and Business Opportunities. In your activities as an employee of Hanover, business opportunities may come to your attention. You are obliged to present any such opportunities to the Company and may not undertake the activities yourself or make them available to a family member or friend without first presenting the opportunity to the Company. In addition, no employee is permitted to pursue a business opportunity that would adversely impact the employee's ability to perform his or her job responsibilities for Hanover. 9 Business Activities with Partners and Competitors. You may not work for, or have a significant relationship with, an enterprise that does business or competes with Hanover without approval from the President and CEO. A relationship with another company is significant if it could impair, or reasonably appear to impair, your ability to act solely in the best interest of Hanover. Examples of significant relationships with an outside company include: serving as an officer, director, or consultant, or in any other, position of responsibility; or owning an interest in the other enterprise. Business Activities of Company Management. In addition to the restrictions discussed above, officers of Hanover and its subsidiaries are prohibited from accepting any position as a director, trustee, or consultant of any business entity without first obtaining the permission of the President and CEO. The Company does not prohibit officers from accepting any position as a director, trustee, or consultant of a not-for-profit entity. Employment of Relatives. Family members who work together present special issues and challenges. To minimize difficulties that might otherwise occur, Hanover does not permit an employee to have influence over the employment, salary, job responsibilities, or termination of a relative. In addition, an employee is not permitted to be in a position to direct, review, or process the work of a relative; have access to the personnel records of a relative; or otherwise have influence over the employment, termination, or compensation of a relative. For the purposes of this policy, a relative is defined as a spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than employees) who shares such person's home. No individual implicated by this policy will be employed unless the Human Resources Department has reviewed the matter with the referring employee and the appropriate Supervisor approves the action. Also, the employment of an individual who is related to an officer of Hanover must be approved by the President and CEO. Loans from the Company. Effective as of the date this Guide is introduced, no employee, officer or director may receive any new loan, guarantee or other extension of credit in the form of a personal loan from Hanover. "INSIDE INFORMATION" AND SECURITIES TRADING ACTIVITIES During the course of your employment with Hanover, you may become aware of important information about Hanover or other companies that has not been provided to the public. Generally speaking, it is illegal and against Company policy to buy or sell securities, such as stocks or stock options, when you are in possession of material, non-public information. This type of illegal conduct is referred to as "insider trading." You should know that passing on or "tipping" material, non-public information to someone who may buy or sell securities may also constitute a violation by both the person who provides the information and the person who receives it. Violations can subject individuals to imprisonment for up to 10 years or longer, substantial fines of up to $1 million, and disciplinary action, including termination of an employee committing a violation. Illegal insider trading by a Hanover employee may also subject the Company to liability and punishment. These prohibitions apply to securities of any company (not just the securities of Hanover Compressor Company) with respect to which a person has acquired material, non-public information. 10 The Company's policies regarding insider trading are intended to protect both employees and the Company from the potentially severe liability arising out of personal securities transactions. All employees are subject to the general policy relating to insider trading discussed below. In addition, employees who are among the "control group" of Hanover are subject to a trading "blackout period" (discussed below), while the most senior officers are also subject to certain additional reporting requirements (discussed below). When in doubt about whether this policy applies to a given transaction, employees, officers and directors are to exercise caution and are to consult the office of the General Counsel before trading in or recommending securities to which that information relates. The Legal Department will determine if a particular transaction is consistent with Company policy. This determination should not be considered legal advice, and you should consider consulting your own legal counsel concerning any legal issues that might affect your specific transaction. What Is "Inside Information"? For the purposes of this Guide, "inside information" is information that is both "material" and "non-public." Information is "material" if the average investor is likely to consider it important in deciding whether to buy, sell, or hold the securities. Examples of information that might be considered material include: mergers, acquisitions, antitrust charges, threats of litigation, financial results, earnings estimates, revisions to previously released earnings estimates, labor disputes, pending large commercial or governmental contracts, key personnel changes, initiation of a proxy fight, major new products or services, significant oil or gas discoveries not publicly disclosed and significant shifts in operating or financial circumstances (such as major write-offs). Information is "non-public" if it has not been effectively disclosed to security holders and the public. You should assume that information is non-public until the third business day after it has been published through a Company press release on one of the major wire services, in a story in a national news medium, or through other means making the information generally available to the public. Examples of "non-public" information may include: undisclosed facts that are the subject of rumors, even if the rumors are widely circulated; and information that has been entrusted to the Company on a confidential basis until a public announcement of the information has been made and enough time has elapsed for the market to respond to a public announcement of the information (i.e., three days). General Prohibition Against Insider Trading. In general, Company policy prohibits employees from trading in Hanover securities or the securities of other publicly traded companies while in possession of inside information about those securities. This prohibition applies to stock, debts, warrants, stock options, or any other securities. The fact that you possess inside information is enough to bar you from trading; it is no excuse that your reasons for trading were not based on that information. You also are prohibited from tipping inside information to others who may buy or sell securities. In this regard, it is important to recognize the risk of inadvertently tipping inside information to someone outside Hanover, such as when fielding an inquiry from a person outside the Company. If you have any doubt whether a person is authorized to receive certain information about Hanover, do not disclose it until you have consulted with the office of the General Counsel. 11 In summary, all of us are strictly prohibited from using inside information for our own benefit and from advising a friend or relative regarding whether to purchase, sell, or hold securities while in possession of inside information. These rules apply regardless of whether the trading is being done for the benefit of the employee, Hanover itself, or someone else. Specific Restrictions on Securities Transactions. In addition to the general prohibition against insider trading, there are also specific restrictions and reporting requirements that apply to certain employees' securities transactions. These are described below. - - MARKET OPTIONS. No employee may trade in market options (such as puts or calls), warrants, or other derivative instruments of Hanover securities. Options granted to you by the Company are not considered market options. - - SHORT SALES. The Company's securities must not be sold short. That is, you may not sell Company securities that you do not own (for example, by borrowing the stock from a broker) in anticipation of later purchasing securities to cover the short sale. - - TRADING ON MARGIN. The Company's securities may not be traded on margin. - - SPECIAL TRADING RULES FOR CONTROL GROUP. The "control group" comprises persons who are designated by the General Counsel to be covered by the special blackout period trading rules. Generally, the "control group" is limited to executive officers, directors and employees whose responsibilities bring them into contact with key financial information. Subject to the prohibition on insider trading, members of the control group of Hanover may only engage in market transactions involving Hanover securities (including stock and stock options) from the third day following the Company's public release of its earnings for that quarter through the 24th calendar day following the release of earnings. In other words, members of the control group may only trade Hanover securities for a 21 day window. Members of the control group, as well as all other employees, are always subject to the general prohibition against insider trading, and are requested to contact the office of the General Counsel prior to engaging in any market transactions involving Hanover securities. In addition, no director or executive officer of the Company may, directly or indirectly, purchase, sell, or otherwise acquire or transfer any security of the Company during any pension fund blackout period for that security if the director or executive officer acquired this security in connection with his or her service or employment as a director of executive office. For the purposes of this ban, "pension fund blackout period" means any period of more than three consecutive business days during which the ability of 50% or more of the participants or beneficiaries of an individual account plan maintained by the Company to purchase, sell or otherwise transfer or acquire an interest in the security held in the individual account plan is temporarily suspended by the Company or by the plan's fiduciary. The insider trading rules do not prohibit the purchase or sale of mutual funds (where the individual investor has no discretion over the individual investments in the mutual fund or the timing of such investments) and do not prohibit the pre-arranged periodic purchases through employee stock purchase plans (including 401(k) plans). That means that insider trading rules would not prohibit directing all or a portion of your periodic contributions in a 401(k) plan toward the purchase of Hanover stock. Please note, however, that selling stock 12 from within your retirement account or purchasing stock for such account in a 401(k) plan must comply with insider trading rules. - - REPORTING REQUIREMENTS FOR SENIOR EXECUTIVES. Executive officers and directors are also subject to "short-swing" profit rules and certain disclosure requirements, such as Form 3, 4, and 5 filings under Section 16 of the Securities Exchange Act of 1934. Those officers and directors who are subject to these requirements are requested to follow the procedures established by the Legal Department to assist in meeting these requirements. If you have any doubt as to the scope or applicability of these trading rules and policies to you or to a particular transaction, contact the Office of the General Counsel. A willful failure to abide by this trading policy and its implementing procedures will result in immediate termination of employment for cause and may result in prosecution as provided by law. A non-willful violation of the policy may result in Hanover taking corrective measures, up to and including termination of employment. SAFEGUARDING COMPANY PROPERTY The ability of Hanover to meet its broad commitments to customers, suppliers, employees, shareholders, and others depends on our ability to efficiently utilize Company property and resources. This includes Company funds, services, technology and the time and talent of our employees. Accordingly, employees are not permitted to use Company resources for personal gain or otherwise in a manner that is not in the best interest of the Company. Employees who use Hanover resources for illegal or improper purposes are subject to discipline, including termination, and could be subject to legal prosecution. Likewise, acts of dishonesty against Hanover involving embezzlement, theft, and destruction or misappropriation of property, including money, office equipment, or any other items of value, also are prohibited and could result in discipline or legal prosecution. USE OF COMPANY EQUIPMENT AND SYSTEMS Employees are advised that all business equipment, such as copiers, facsimile machines, computers, and the telephone system, are the Company's property and, with limited exception, should be used only for business-related reasons. Incidental and occasional personal use of the Company's computers, copiers, facsimile machines, telephone systems, voice mail, electronic mail (E-mail), and Internet service is permitted, provided such use does not interfere with the performance of an employee's responsibilities and is limited to lawful purposes and then only when such use is consistent with the policies in this Guide. Employees are reminded that under no circumstances should Company systems and equipment be used to transmit, receive, or access any material that might be perceived as offensive or harassing to others. Employees are reminded that Hanover's policies regarding equal employment opportunity and against sexual harassment, including the procedures for filing complaints, apply fully to the use of the computer, telephone, voice mail, E-mail, and Internet services. Please be aware that you do not have any personal right of privacy as to any communications, data, or information created, received, or transmitted using Hanover's systems or equipment. 13 Use of Hanover's communication systems, computer systems and other equipment is monitored, and individuals who disregard these policies will be subject to disciplinary action, up to and including termination. Information, even information deleted by the user, remains on the system and is available to be recalled by the system administrator or anyone who has administrative manager access. Any employee wishing to utilize new software on any Hanover equipment should receive approval from both their Department Manager and the Manager of Information Systems. Employees learning of any misuse of software or related documentation within the Company shall notify the Manager of Information Systems or the Human Resources Department. E-mail Policy. Hanover provides many of its employees with the use of E-mail, E-mail offers employees a cost- and time-effective alternative to some paper-based communication. We use E-mail at Hanover for a variety of business purposes, such as bulletin distribution, project status updates, meeting coordination, and small file transfers. With this access, however, come certain rules and responsibilities. - - MESSAGE CONTENT. Employees should use good judgment regarding the content of their E-mail messages. Employees should be as careful about E-mail content and confidentiality as they would when drafting a paper memorandum. Also, keep in mind that your intended audience is not your only potential audience. E-mail message privacy is intrinsically uncertain because messages can be forwarded, printed, cut, pasted, or blind copied to other recipients. In addition, due to the nature of the medium, E-mail messages might be taken out of context or misinterpreted. - - DISTRIBUTION. Sending E-mail to a small group of persons simultaneously can, under appropriate circumstances, enhance employees' productivity. Sending E-mail to large numbers of individuals can, however, be unnecessarily distracting and reduce efficiency. Hanover prohibits the use of its E-mail system for sending mass messages to its employee population without special authorization from Human Resources and from using its E-mail system to circulate chain letters or similar communications. - - RETENTION. In order to maximize computer space, E-mail messages should be promptly deleted from individual computers after they are reviewed. Unless required by special circumstances, business necessity or by the policy on document retention found elsewhere in this Guide, messages contained in E-mail in-boxes or backup media should be maintained for a maximum of 30 days. Employees should remember that E-mail messages may be stored on backup or long-term databases indefinitely, even when they have been deleted from individual computers. Employees should remember that E-mail messages are Company property and are subject to monitoring, access, and disclosure. - - ACCESS. E-mail passwords or accounts should not be shared. You are permitted to provide your E-mail address to vendors and other third parties, but you should ensure that those persons are made aware of Hanover policies, particularly its restrictions as to content, and agree to abide by the Company's policies. Voice Mail Policy. Employees are reminded that their professional behavior extends to the use of voice mail systems. Voice mail content should always be professional, and voice mail should never be used for harassing or improper purposes. Much like E-mails, voice mail messages are 14 stored and may become a permanent record. As a result, employees should use good judgment regarding the content of voice mail messages. Internet Policy. Hanover provides Internet access to authorized individuals so that employees may perform their job functions more effectively and efficiently. The Internet is often the most appropriate method of communicating and gathering business-related information. Use of the Internet is subject to the Company's general policies regarding the use of its systems, including the prohibition against accessing or transmitting inappropriate or offensive materials. Employees should take particular care in engaging in discussions in "chat rooms" or other Internet forums and should under no circumstances disclose confidential or proprietary information in any such discussions. Employees are reminded that their Internet usage is subject to monitoring by the Company. USE, HANDLING AND PROTECTION OF COMPANY INFORMATION Ownership of Ideas and Information. All ideas and all expressions of ideas created or developed by Hanover employees that relate to the business, products, or services of Hanover belong to the Company. This includes ideas developed at the office and elsewhere (including at home) and includes the right to publish such ideas or obtain a copyright for them. Customer Information. You are expected to be sensitive to the fact that customer information is given in confidence and for a limited purpose. As a result, you may not disclose to others any confidential information in Hanover's possession or use any such information for your own or someone else's benefit. In addition, both during and subsequent to your employment with the Company, you are expected to take reasonable precautions to prevent the unauthorized disclosure of confidential information regarding Hanover's customers. Any request to provide confidential information to any external source should be referred to the Legal Department. Trade Secrets and Other Confidential Information. It is crucial that each Hanover employee protect the Company's trade secrets and other confidential Company information. This includes information that is not known to the public or to competitors and that gives Hanover a competitive advantage. Hanover employees may have access to sensitive information originating from a client using a Hanover product. It is the responsibility of our employees to safeguard this information, treating such information as sensitive and confidential. Employees should respect confidential information which they may have had access to as employees of another company, unless such information is made available with the consent of the other company or has otherwise become publicly available. Each of us who possesses or has access to confidential information or trade secrets has an important responsibility to keep that information confidential and to prevent it from being improperly disclosed to others inside or outside of Hanover who are not entitled to receive it. This obligation applies both during and subsequent to your employment with Hanover. An employee must return any documents or records belonging to Hanover after termination of his or her employment. Federal law makes it a crime to appropriate a trade secret for the economic benefit of anyone other than the owner. It is Hanover's policy both to observe this law in relation to the trade secrets of other persons and to expect compliance with this law by those with access to its own trade secrets. 15 Distribution of Information. Any and all inquiries, attempts to gain specific information or interview requests from outside sources, including representatives from the news media, banks, rating agencies and equity analysts, should immediately be referred to the office of the President and CEO for response. Any general request for information on Hanover is to be referred to Hanover Investor Relations. Employees, other than authorized spokespersons, are not to respond to information inquiries relating to Hanover from outside sources under any circumstances unless specifically authorized to do so by a spokesperson and the office of the President and CEO. No employee or officer may initiate any communication with the news media, banks, rating agencies, equity analysts or any other outside source concerning Hanover without authorization of the office of the President and CEO. All press releases, or other official declarations on behalf of Hanover should be approved in advance by the President and CEO. Information deemed to be of a confidential nature or meeting the criteria for nonpublic and material set out in the Guide provision covering insider trading may not be discussed by any employee, officer or director with anyone outside the organization without permission of the Legal Department. Use of Patents, Trademarks and Copyrights. Hanover uses trademarks and copyrights - words, names, symbols, or devices - to identify and distinguish the Company's products. The Company uses patents to protect its technology. Hanover's name is one of our most valuable corporate assets. You are not permitted to use the Company's name, logo, or letterhead to conduct personal or non-Company business. In addition, you are not permitted to use any of the Company's trademarked or copyrighted materials and its patents other than in connection with your work for Hanover and with the approval of management. Similarly, we should all be vigilant in ensuring that other parties do not infringe on Hanover's name or its patented, copyrighted and trademarked materials. Legal Privileges. Like other assets of the Company, the attorney-client privilege and other legal privileges from disclosure belong to the Company. As such, these privileges can only be waived by the Company and should be guarded with vigilance by employees. To ensure that Hanover's legal privileges are appropriately preserved, employees are prohibited from disclosing any confidential information, including the advice of attorneys for the Company, without first obtaining approval from the Legal Department. No attorneys may be retained, either as Hanover employees or as outside counsel, without notice and approval by the Legal Department. Retention of Documents. Hanover cooperates fully with all government investigations and the judicial process. Accordingly, there are instances in which Company documents should be retained. Examples of these types of situations include filed or anticipated litigation, federal or state investigations, and internal and external audits. In these circumstances, you should retain all documents (including computerized information) in your custody or control relating to the matter under review. Please note that the destruction or falsification of a document in order to impede a governmental investigation, audit, or examination may lead to civil or criminal sanctions. The Company may promulgate more specific document retention policies or instructions from time to time, and each employee is required to comply with such additional policies or instructions. If you are not sure that a document should be destroyed or discarded, consult the Legal Department. 16 SPECIAL RULES FOR FINANCIAL INFORMATION Financial Information. The responsibility to ensure the accuracy of the books and records of Hanover does not rest exclusively with our accounting and auditing personnel. Rather, each employee should help to ensure that our Company's financial information complies with the law, applicable accounting and record keeping standards, and Company policy. Employees are expected to accurately record and report financial information and to fully cooperate in any audits of Company records. All employees who are involved in preparing or reviewing financial documentation are responsible for ensuring that transactions are recorded accurately and in appropriate detail. All receipts and disbursements should be fully and accurately described in the Company's books and records and should be supported by appropriate descriptive documentation. In addition, individuals are prohibited from requesting or making reimbursement, or otherwise making payment on invoices, without proper documentation that is consistent with Company policies. If you have reason to believe that any of Hanover's books and records are not being maintained in an accurate or complete manner, you are expected to report this immediately to your supervisor, to the Internal Audit Department, or to the Finance Department. You are expected to report if you are ever pressured to prepare inappropriately or destroy financial documents or if you become aware that any misleading, incomplete, or false statement was made to an accountant, auditor, attorney, or government official in connection with any audit, examination, or filing with a government agency. If you have any complaints or concerns regarding accounting or auditing matters [or other matters regarding the CEO, senior management or the Company's public disclosures to shareholders], in addition to the alternatives for obtaining guidance that are outlined above, you may submit a confidential, anonymous written statement to the Audit Committee of Hanover's Board of Directors by submitting a copy addressed to the Chairman of the Audit Committee with your complaint or concern forwarded care of the General Counsel's office. No accountants may be retained, either as Hanover employees or as outside auditors, without notice and approval by the Finance Department, who in turn may require the approval of the Company's audit committee. No filing may be made to any agency, including the Securities and Exchange Commission, without that filing being cleared by the Finance and Legal Departments in accordance with Company policies. Proper Documentation and Accounting of Transactions. The goal in drafting and documenting contracts and other Company transactions should be to ensure that they are written and substantiated with sufficient clarity and definitiveness that Company personnel, outside auditors and others reviewing the contract can understand the goods and services being provided and, if specified, their price. For this reason, each payment by Hanover for goods or services shall be supported by documentation reflecting the purpose and nature of such payment. All payments and billings for equipment, parts or services shall be made in such a manner that public disclosure of the full details thereof would not impugn or jeopardize Hanover's integrity or reputation. 17 BUSINESS TRANSACTIONS AND CONTRACT ADMINISTRATION Business transactions, including those completed through the execution of contracts with others, should be entered into in a manner that serves the best interests of the Company and our shareholders. This means that all business transactions should be accomplished on terms that are arrived at through arms-length negotiations on terms which are commercially reasonable. No transaction should be entered into - and no contract should be executed - as a means or in a manner that is inconsistent with legitimate business interests of the Company or which lacks economic substance. Similarly, documentation (including contracts, purchase orders or invoices) may not be created to support a transaction which is inconsistent with the business terms of the transaction. Contract administration is the management, supervision, and monitoring of the execution of the terms and conditions of a contract. Contracts refer to all written agreements or understandings (and amendments thereto) that are to be executed in the name of and binding upon Hanover or its subsidiaries or affiliates. Hanover has centralized the overall coordination as well as the responsibility associated with the administration of contracts. Contract administration is coordinated within the Legal Department and managed by the Director of Contract Administration. An integrated set of detailed policies and procedures direct the overall contract administration process flow from contract initiation, negotiation, modification, maintenance, review, and/or ultimate disposition. The Legal Department also provides advice regarding legal sufficiency, confirms approval authority, and assists management in identifying and evaluating potential risks. Appropriate approvals for contracts should be obtained in accordance with Company policy. In order to collect appropriate approval signatures, contract documents are circulated for review among certain individuals associated with specific disciplines and/or departments (e.g. Finance, Legal, and Tax). After the terms and conditions of an agreement have been negotiated and finalized, the contract should be signed by an appropriate Hanover officer or properly authorized representative. All executed contracts should be reported, cataloged, and filed for safekeeping consistent with Company policy. POLITICAL ACTIVITIES AND CONTRIBUTIONS Hanover encourages all employees to vote and to participate actively in the political process. Individuals are free to contribute their personal time and resources to political campaigns and candidates. Individual contributions should be made in the name of the donor and cannot be made in the name of another person or entity. For example, employees are prohibited from making contributions to political parties or candidates in the name of Hanover. Prohibited Corporate Activities. Federal and state law and the laws of some foreign countries impose significant restrictions on the ability of corporations to contribute to state and federal candidates or political parties. Accordingly, employees are prohibited from devoting Company work time, facilities, or property (including the Company's trademark) to a political campaign or party. In addition, consistent with the law, the Company will not directly or indirectly reimburse employees for contributions made to a candidate, or party. Employees are strictly prohibited from including any such contributions, including the cost of attendance at political fundraisers, on expense reports or other requests for reimbursement. 18 Do Not Represent Hanover in Political Matters. Detailed and complex federal and state laws and the laws of some foreign countries regulate political and lobbying activities. Unless specifically authorized to do so, employees cannot independently deal with government officials or political candidates on behalf of or in the name of Hanover. Employees also are not permitted to represent, and should avoid the appearance of representing, personal political activity as activity on behalf of Hanover. Pressure to Support Hanover Political Activities Is Prohibited. Employees should not be compelled or pressured into working on behalf of any political campaign or party, casting a vote one way or the other. Any financial reprisal, job discrimination, or other undue influence used or threatened in such a situation is against Hanover policy and should be reported immediately to the Human Resources Department or the Legal Department. 19 HANOVER'S RELATIONSHIP WITH OTHERS OVERVIEW At Hanover, we have a disciplined, entrepreneurial spirit and the will to prevail in the competitive marketplace. It is critical, however, that we not compromise our value of integrity for the sake of enhanced profit or operating performance. Rather, we should treat others as we would like to be treated. FAIR COMPETITION Hanover expects that each employee, officer and director will endeavor to deal fairly with the Company's customers, suppliers, and competitors. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing. Federal antitrust laws and other federal and state laws and the laws of foreign countries regulate certain aspects of the manner in which businesses and their employees can interact with each other. To comply with these laws and as a matter of Company policy, all employees of Hanover should strive to engage in fair competition. Fair competition means that Hanover employees should not use tactics that unfairly hurt competitors, are anti-competitive, or otherwise involve the provision of misleading or inaccurate information. Conduct that should be avoided includes the following: Disparaging Remarks. In conducting Hanover's business, employees should focus on the strengths of Hanover and its products and services, and should refrain from making disparaging remarks about competitors that could be considered "competitor bashing." While "disparaging remarks" do not include relevant, factually accurate information, they do include statements made to dissuade a consumer from doing business with a competitor if the information is inaccurate or misleading. Truthful Promotion. Our advertising should always be truthful. If we make specific claims about our products or the performance of our products, we should have evidence to substantiate these claims. We should not label or market our products in any way that might cause confusion between our products and those of any of our competitors. Similarly, we should be alert to any situation where a competitor may be attempting to mislead potential customers as to the origin of products and inform appropriate management or the Legal Department of any such case. If we supply any estimates - such as cost estimates - they should be fair and reasonable. To the maximum extent possible, they should be backed by objective facts and experience. To the extent that the estimate cannot be objectively verified, it should be based upon the good faith judgments of those making the estimate. If it is necessary to forecast future delivery dates, such forecasts should be made in the same way as an estimate - backed up by objective evidence to the maximum extent possible and based upon good faith judgment where required. Anti-Competitive, Unfair, or Deceptive Trade Practices. Hanover should compete in the market on the basis of its independent business judgment and should avoid even the appearance of collusion with a competitor. For example, employees cannot reach agreements with competitors 20 to fix prices, fix the terms or conditions of product sales, divide markets, enter into group boycotts, or engage in deceptive practices. Employees and officers who attend a trade association meeting or who belong to a trade association should familiarize themselves with antitrust principles and legal pitfalls involved in trade association programs and conduct ourselves accordingly. Company representatives should be vigilant that they do not participate in improper discussions with competitors on these occasions, even if outside the context of meetings themselves. Tying and Bundling. Tying or bundling arrangements exist where a seller conditions the sale of one product or service on the buyer purchasing some other separate and unrelated product or service, or only makes products or services available as a package. Such practices are not in-and-of-themselves illegal, but under certain conditions they can raise antitrust issues. As a general matter, tying and bundling is only prohibited where the seller has a monopoly position or faces only very weak competition in one product or service, and as a result of the practice can coerce customers into paying a price for one or more additional products or services at above-market level prices. If you have concerns that the Company is entering into an arrangement that might raise the issue of tying or bundling or if a customer complains to you that this is the case, please promptly notify the Legal Department. Reciprocity. Our products are sold on the basis of good quality and service for a fair price. We should be buying the products of others based on those same considerations. While parties may agree voluntarily to buy and sell to one another, where one of the parties possesses monopoly power or market power problems similar to the tying arrangements discussed above may arise. Reciprocity means agreeing to buy the products or services of a supplier on the condition that the supplier also agree to buy products and services from us. As a general rule, we should thus not attempt to sell our products to companies on the basis of purchases we may make from those other companies, nor should we allow other companies to attempt to make us buy their products simply because they sell products to us. This list of fair competition practices is not exhaustive, and the application of the law to any specific situation is apt to be quite fact-specific. For this reason questions regarding actions that may raise antitrust and fair competition concerns should be presented to management and the Legal Department at the earliest possible opportunity. USE OF COPYRIGHTED AND OTHER PROTECTED MATERIAL Federal law grants the owners of intellectual property, such as copyrighted materials, with the exclusive right to use and authorize the use of their protected materials. To this end, federal law forbids unauthorized persons from copying or otherwise duplicating protected materials. For example, this protection is extended to preparing advertising or promotional materials, using the name or printed materials of another company, or operating an unlicensed software program on a personal computer. There are also legal restrictions to obtaining and using trade secrets and confidential or proprietary business information belonging to other organizations. It is generally permissible to obtain information about other organizations, including Hanover's competitors, through legal and ethical means, such as publicly available documents, public presentations, articles, and other published sources. It is not acceptable, however, to obtain proprietary or confidential 21 information, including information about a competitor, through illegal means, such as fraud, bribery, or misappropriation, or by inducing someone to breach a contract. GOVERNMENT CONTRACTS The laws and regulations governing contracting with the government can impose requirements not traditionally associated with purely commercial business transactions and can subject individual and corporate violators to civil and criminal penalties. Accordingly, you should contact the Legal Department prior to entering into a government contract to ensure that you are familiar and in compliance with any applicable rules. Where the Company decides to entertain such a contract, it is Hanover's policy to do so in an honest and fair manner and to satisfy both the Company's legal obligations and its commitment to maintain the highest standards of integrity. GIFTS, BRIBERY, AND IMPROPER PAYMENTS Domestic Public Officials. Under U.S. federal and many state and local laws and the laws of foreign countries, it is unlawful for the Company or any of its employees to give a public official a gift or anything of value to influence the public official to take official action or in appreciation for any official act that the public official may take. For these purposes, public officials include federal, state, and local government representatives and officials, whether elected or not, and their staffs and relatives. The following rules apply to the conduct of all employees of Hanover when dealing with any public official: - - No gift of cash should ever be given, directly or indirectly, to or for the benefit of a public official. - - No gifts, services, special treatment, or entertainment shall be given, either directly or indirectly, to any public official to influence or induce the public official to take or refrain from taking an official act. - - No gifts, services, special treatment, or entertainment shall be given, directly or indirectly, to any public official in appreciation for official acts the public official has taken, or may take in the future, on behalf of the Company. - - Public officials who, directly or indirectly, demand or request gifts, services, special treatment, or entertainment should be courteously refused. All such demands or requests by a public official should be immediately reported to management and the Legal Department. Foreign Public Officials. Under federal law and the law of some foreign countries, United States companies and their employees are generally prohibited from directly or indirectly offering or making payments to foreign officials, political parties, political party officials, officials of any international organization or candidates for foreign political office in order to win or retain business or influence any act of such officials. Payments made to third parties under circumstances suggesting that the payment would be passed along to a prohibited source also are illegal. Hanover forbids making any direct or indirect prohibited payments and requires that all payments to foreign officials, candidates, or parties receive the prior approval of management and the Legal Department. In addition, federal law requires that Hanover maintain books, records, and accounts - including records of payments to foreign officials - that accurately and fairly reflect the transactions and 22 dispositions of the Company's assets. Each employee is responsible for ensuring that Hanover's books and records are maintained consistent with the law. In some foreign countries, "expediting" or "grease" payments are customarily demanded by or offered to clerical and other low-level foreign government personnel to take routine action to which the Company is entitled under applicable law. Although such payments may not be illegal under local law, Hanover nevertheless strongly discourages them and permits them only when legally permissible, of nominal value and as a measure of last resort to avoid damaging delays and refusals by foreign government officials to do routine duties of the sort ordinarily performed by that official. No such payment should be made without consultation with management and, as appropriate, with the Legal Department. Such payments will be properly recorded in the Company's books and records. Commercial Bribery. Commercial bribery is a payment to illicitly influence an employee's conduct with respect to that employee's business. Hanover policy requires that all commercial transactions be conducted at arms-length in a manner that is beyond even the appearance of impropriety. As such, employees at Hanover are prohibited from taking or offering bribes or kickbacks to any party to a private transaction. In addition, entertainment of customers (or other third parties with whom the Company deals) should be conducted within the bounds of applicable laws and good taste, and never under circumstances that might suggest a compromise of the impartiality of such persons or that would raise questions about Hanover's integrity or motives. Similarly, Hanover's property, services, and personnel should never be used to benefit a customer or business relationship in a fashion that is not directly pertinent to the parties' business dealings. SELECTION OF REPRESENTATIVES Company representatives (sometimes called "agents" in our industry), whether retained for domestic or overseas business, shall only be retained under an appropriately written and executed agreement. This agreement should specify that compliance with relevant aspects of this Guide and, in particular, its provisions on gifts, bribery, and improper payments, is a condition of the agreement. The amount of and basis for compensation of the representative shall be consistent with accepted practice in the industry, the anticipated duration of the representative's retainer and the specific responsibilities assigned to the representative. Payments or agreements with any representative shall not be made in violation of applicable U.S. law or the law of the affected foreign country, and under no circumstances shall a payment be made if there is reason to believe that any portion of the payment will be offered, directly or indirectly, to foreign officials, political parties, political party officials, officials of any international organization or candidates for foreign political office. INTERNATIONAL BUSINESS AND TRADE Hanover is committed to full compliance with the laws of each country in or with which we conduct business. The fact that a foreign government does not typically enforce certain laws does not alter your obligation to comply with those laws. Because foreign laws may differ from those in the United States, you should consult an attorney in the Company's Legal Department before either entering into a business transaction in a country with which Hanover has no business experience, undertaking a significant new business venture in a country in which Hanover currently does business or wherever you have any questions as to the legal implications of any overseas business transaction. 23 It is important to remember that conduct that is prohibited directly should not be attempted indirectly through an intermediary or other third party. What follows is meant to give you a sense of the nature and scope of the laws affecting imports and exports and to better ensure that you are sensitive to the relevant issues, but is not meant as a substitute for working with the Legal Department. Exports and Imports. All exports of commodities and technical data from the United States are controlled by U.S. federal laws and regulations, as are foreign transactions involving the sale of commodities made abroad using technical data or components with U.S. origins. Further, the United States imposes embargoes on certain countries. Hanover complies with all applicable federal export control laws and regulations. While not all employees are involved in Hanover's export of products or data or in the import of products or services from other nations, employees should be aware of the existence of laws affecting these types of transactions and should be scrupulous in obtaining proper management and legal advice to ensure compliance with the letter and the spirit of relevant laws. This policy applies to transactions conducted by the Company from the U.S. as well as those by or through the Company's overseas affiliates. Foreign Boycotts. Generally, United States law prohibits Hanover from complying with or supporting a foreign country's boycott of another country that is friendly to the United States. In addition, Hanover is required to report promptly to the United States government any request to support such a boycott. A foreign country, or an entity associated with the country, could make the request in a bid invitation, purchase contract, letters of credit, a common letter or memo, or orally in connection with a transaction. If you receive or learn of a boycott or related information request, please report it promptly to management or the Legal Department for appropriate action. Human Rights and The Company's International Operations. Hanover believes that international commerce ultimately strengthens societies and supports human rights. To guard against circumstances that might otherwise contribute to human rights abuses, Hanover is committed to supporting and respecting the protection of internationally proclaimed human rights within its sphere of influence and, in particular, to ensuring that its security arrangements are consistent with international human rights standards. Employees retaining or coordinating with public or private security forces are expected to follow Hanover's policies on dealings with security forces and to contact the company's Legal Department immediately with any questions concerning implementation of these human rights standards. 24 ADMINISTRATION INTERPRETATION Management and the various disciplines in our corporate offices (i.e. the Finance, Human Resources, Health, Safety, and Environment, and Legal Departments) are responsible for interpreting and applying the policies set out in this Guide to specific situations in which questions may arise. Any questions relating to how these policies should be interpreted or applied should be addressed to the appropriate discipline, as specified in this Guide. POLICY ADMINISTRATION Policy administration is associated with all aspects of documenting, organizing, maintaining, and communicating the policies, practices, procedures, and approvals of the organization to employees. The scope of documented policy and procedure is intended to include all of the information that an employee should know or have ready access to regarding how to operate successfully at Hanover. Any questions regarding the creation, modification, or disposition of the organization's policies, practices, procedures, or approvals should be referred to the Director of Policy Administration. COMPLIANCE WITH THE GUIDE In general, the use of good judgment and common sense, based on high ethical principles, will guide employees with respect to lines of acceptable conduct. If a situation arises where it is difficult to determine the proper course of action, the matter should be discussed openly with your immediate supervisor, others in management, or the Human Resources or Legal Departments for advice and consultation. Compliance with this Guide of business ethics and conduct is the responsibility of every Hanover employee. All employees have a moral, and, in some cases, legal obligation to call to the Company's attention any situation in which the policies in this Guide are not observed. An employee with knowledge of or reasonable belief of any violation should promptly report such violation to management or the Human Resources or Legal Departments. All such information will be received with the understanding that the Company will not allow retaliation for reports made in good faith. The Company shall take appropriate disciplinary action, including dismissal, if appropriate, with respect to those employees involved in any violation of this Guide. In other cases, the Company may have a legal and moral obligation to call violations of the Guide to the attention of appropriate law enforcement authorities as, in some cases, violations of the Guide are also violations of the law. Periodically, all of Hanover's officers will be required to state, in writing, that they have no knowledge of any material violation of this Guide other than those violations, if any, which have previously been reported to the President and CEO. The President and CEO of Hanover shall be charged with the responsibility of obtaining and reviewing these statements. 25 DISTRIBUTION Every employee, officer and director of the Company shall be provided access to or shall be given a copy of the Guide. Every new employee will be provided access to or will be given a copy of the Guide and asked to acknowledge receipt of it either at or within one week of hiring. Where appropriate, representatives, consultants, contractors or advisors engaged by Hanover to render services shall be furnished a copy of this Guide which shall govern such engagement. 26 QUESTIONS AND ANSWERS Hanover has created this question and answer section to increase your awareness of how this Guide should be applied. It is not intended to answer every question you may have about Hanover's policies or applicable laws and regulations, but merely to help demonstrate how to apply the Guide in everyday situations. THE CORPORATE RESPONSIBILITY PROGRAM Q: What should I do if I have a question about workplace conduct or see something that I think might be wrong? A: There are several things you can do if you have questions about workplace conduct. First, we encourage you to try to ask, or resolve matters with, your supervisor whenever possible and appropriate. If for any reason you do not feel comfortable talking to your supervisor, or if your supervisor does not answer the question or address the problem to your satisfaction, then there are other options. You can contact others in management or the Human Resources or Legal Departments. Finally, you can call the Hanover toll-free number at 1-800-281-5439. Q: If I report conduct that I believe is a violation of the law or Company policy, will I get in trouble if my suspicions turn out to be wrong? A: As a Hanover employee, you have a responsibility to report suspected problems; in fact, employees may be subject to discipline if they witness improper conduct but do not report it to the Company. Hanover's policies prohibit any retaliatory actions against employees who report problems. The only time someone will be disciplined for reporting misconduct is if that person reports something he or she knows to be false or misleading in order to harm or harass someone else. Q: What should I do if my supervisor asks me to do something that I think violates Hanover policy or is illegal? A: Consistent with our value of "straightforward communication," it is best if you first discuss your concerns with your supervisor. If you continue to have concerns after speaking with your supervisor, contact others in management or the Human Resources or Legal Departments. Of course, you should not take any action that you believe violates Company policy or the law. AVOIDING CONFLICTS OF INTEREST Q: One of the companies with which we do a lot of business has offered me tickets to a baseball game. Can I go? A: Generally, yes. You can accept an occasional gift of relatively nominal value given in the course of normal business relations that neither has the effect of influencing your conduct nor 27 appears to influence your conduct. If the tickets are for a game out of town and include transportation and meals, you should not accept the gift. Similarly, if you are offered season tickets or tickets to numerous games, you should decline the gift. Q: I have been asked to have a brochure printed. My husband owns a small but highly reputable printing business. May I hire him to do the printing for Hanover if the prices are comparable to other companies? A: No. While it seems unfair, the potential for conflict is too high to permit employees to enter into business relationships with their relatives. Such a situation would put the employee in an impossible situation if the job were not properly completed and gives the improper outward appearance of favoritism. INSIDE INFORMATION AND SECURITIES TRADING ACTIVITIES Q: How can I tell if information is "material" for purposes of the Company's policy on insider trading? A: Unfortunately, there is no clear standard to determine whether information is material. Some categories of information - such as information regarding earnings or a corporate acquisition - are important enough that you should generally consider them to be material. If you have any questions regarding whether you are in possession of material, non-public information, you should abstain from trading or contact the Legal Department prior to trading. Q: Am I precluded from trading Hanover securities if I overhear other employees discussing material, non-public information about the Company in a conversation of which I am not a part? A: Yes, Company policy prohibits employees from trading while in possession of inside information, regardless of the source of that information. In addition, you must refrain from passing the information on to others. Q: I had planned to sell some of my Hanover stock on May 15 to buy a car. On May 10, I received non-public information about the Company's expected financial performance for the quarter. Am I forbidden from selling the stock as planned? A: Yes. Company policy prohibits you from trading if you possess inside information about Hanover at the time of the proposed trade, even if the information did not play a role in your investment decision. If you are planning to trade in Hanover securities, and you have questions as to whether or not trading is permissible, you should consult the Legal Department. Q: Does it violate Company policy if I tell one of my relatives to buy stock in Hanover so long as I do not give them material, non-public information? A: Yes. If you are in possession of inside information you are not permitted to take any action, or advise anyone to take any action, based on that information - - even if you do not share the information with them. 28 SAFEGUARDING COMPANY PROPERTY Q: My son is applying for his first job. Can I use my office computer to type his resume? A: Yes, provided that you type the resume on your personal time (at lunch or after working hours) and that doing so does not otherwise interfere with your work. You should also remember that because the Company owns the computer system, you do not have a right of privacy with respect to the resume or any other personal documents that you create or store on your office computer. Q: I am selling my car. Can I send the employees in my Division an E-mail with information about the make, model, and price of the car? A: This type of E-mail should be avoided. Personal use of the E-mail system should be extremely limited and, in all cases, requires employees to use good judgment regarding whether your actions will disrupt legitimate Company business. Personal announcements like the one proposed are likely to disrupt a large number of employees with information unrelated to Company business. Q: I am involved in an organization that is having a fundraiser. The organization needs addresses of people it can ask for donations. May I give the organization a list of addresses that Hanover uses for its publications if I don't reveal any sensitive customer financial information? A: No. We are all responsible for protecting the confidentiality of information Hanover receives from its customers, and those customers are entitled to expect us to respect their privacy. This rule applies not only to financial information, but also to anything else a client discloses during the course of doing business with Hanover. That information should be disclosed only to those authorized to receive it for a legitimate business purpose. FAIR COMPETITION Q: I am at a meeting and see a friend who is also a Hanover competitor. She begins to discuss her company's pricing policy and asks me about Hanover's pricing. What should I do? A: Stop the discussion immediately. A conversation with a competitor about pricing could be illegal. If a competitor raises this issue, even in friendly conversation, you should object, stop the conversation immediately, and tell the person that under no circumstances will you discuss these matters. POLITICAL ACTIVITIES AND CONTRIBUTIONS Q: In my personal time, I sometimes volunteer for political campaigns. May I use a copy machine at Hanover to copy a fundraising leaflet? A: No. Federal and certain state laws and Hanover policy prohibit the use of corporate resources 29 in connection with political activity; therefore, you may not use Hanover time or resources to support political campaigns. EMPLOYMENT ISSUES Q: Another employee is bothering me and making remarks I find offensive. I am not sure if this behavior would constitute "harassment" or not. What should I do? A: To the extent that you feel comfortable doing so, tell the employee to stop making the remarks. If you are not comfortable speaking directly to the employee, you should discuss the matter with your supervisor. If, for any reason, you feel uncomfortable discussing the problem with your supervisor or you want to make a complaint regarding the conduct, you should contact the Human Resources Department. 30 COMPANY CONTACTS - - DOMESTIC SALES, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, USA, Phone: 281-405-5127, Fax: 281-447-8790 - - FINANCE, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, USA, Phone: 281-405-6219, Fax: 281-447-1933 - - HEALTH, SAFETY, AND ENVIRONMENT, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, Phone: 281-447-8787, Fax: 281-405-6203 - - HUMAN RESOURCES, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, USA, Phone: 281-405-5146, Fax: 281-445-1850 - - INTERNAL AUDIT, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, USA, Phone: 713-982-5457, Fax: 713-982-4004 - - INTERNATIONAL OPERATIONS, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, USA, Phone: 281-405-6357, Fax: 281-447-3619 - - LEGAL, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, Phone: 281-405-5175, Fax: 281-405-6203 - - MANUFACTURING AND FABRICATION, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, USA, Phone: 281-405-6301, Fax: 281-820-5918 - - U.S. OPERATIONS, 12001 N. Houston Rosslyn Rd., Houston, TX 77086, USA, Phone: 281-405-5102, Fax: 281-447-8790 The policies set out in this Guide apply to all Hanover employees and, where so indicated, to its directors. In select circumstances, employees may be required to follow certain more stringent policies adopted to govern activities in which individual employees may be involved. Nothing in this Guide should be read as a guarantee of employment, a commitment to provide employment or a promise to continue any terms or conditions of existing employment. (Publication Date: January 1, 2003) 31 EX-21.1 22 h12863exv21w1.txt LIST OF SUBSIDIARIES . . . EXHIBIT 21.1 HANOVER COMPRESSOR COMPANY & SUBSIDIARIES (FEIN: 76-0625124) COMPANY LISTING AS OF 12/31/03
PLACE OF COMPANY NAME INCORPORATION OWNERSHIP 1 Aremco, Ltd. Saudi Arabian Corporation 49% Owned 2 Aurora Barbados, S.r.L. Barbados Corporation 100% Wholly owned 3 Belleli Energy S.r.L. Italian Corporation 100% Wholly owned 4 Belleli Energy F.Z.E. United Arab Emirates Corporation 100% Wholly owned 5 Collicutt Energy Services Ltd. Canadian Corporation 24.1% Owned 6 Coll-Tech Ignition Systems, Ltd. Canadian Corporation 24.1% Owned 7 CrystaTech, Inc. Delaware Corporation 35% Owned 8 DBS Transport, S.A. Switzerland Corporation 40% Owned 9 E I Venezuela Development Ltd. Cayman Islands Company 100% Wholly owned 10 Energy Transfer-Hanover Ventures LP Delaware Limited Partnership 100% Wholly owned 11 Gulf Coast Dismantling, Inc. Texas Corporation 100% Wholly owned 12 H.C.C. Compressor de Venezuela, C.A. Venezuelan Corporation 100% Wholly owned 13 Hanover Argentina, S.A. Argentina Corporation 100% Wholly owned 14 Hanover Asia, Inc. Delaware Corporation 100% Wholly owned 15 Hanover Australia LLC Delaware Limited Liability Company 100% Wholly owned 16 Hanover Bolivia, Ltda. Bolivian Limitada 100% Wholly owned 17 Hanover Brasil, Ltda. (f/k/a Hanover do Brazil, Ltda.) Brazilian Limitada 100% Wholly owned 18 Hanover Canada Corporation (f/k/a Collicutt Hanover Compression Co.) Nova Scotia Unlimited Liability Company 100% Wholly owned 18 Hanover Canada, Inc. Canadian Corporation 100% Wholly owned 19 Hanover Cayman Limited Cayman Islands Corporation 100% Wholly owned 20 Hanover Colombia Leasing, LLC Delaware Limited Liability Company 100% Wholly owned 21 Hanover Compressed Natural Gas Services, LLC Delaware Limited Liability Company 100% Wholly owned 22 Hanover Compression General Holdings, LLC Delaware Limited Liability Company 100% Wholly owned 23 Hanover Compression Limited Partnership Delaware Limited Partnership 100% Wholly owned 24 Hanover Compressor Capital Trust Delaware Trust 100% Wholly owned 25 Hanover Compressor Colombia Ltda. Colombian Limitada 51% Owned 26 Hanover Compressor Company Delaware Corporation Parent 27 Hanover Compressor Company Trinidad Trinidad Branch 100% Wholly owned 28 Hanover Compressor Holding Company NL B.V. Dutch Company 100% Wholly owned 29 Hanover Compressor Mexico SRL Mexican Corporation 100% Wholly owned 30 Hanover Compressor Nigeria, Inc. (f/k/a Hanover Compressor Colombia, Inc.) Delaware Corporation 100% Wholly owned 31 Hanover Compressor Peru, SAC Peruvian Company 100% Wholly owned 32 Hanover Compression Limited Partnership Sucursal Colombian Branch 100% Wholly owned 33 Hanover Compressor Company Mexico Mexican Branch 100% Wholly owned 34 Hanover DR Compression Services, B.V. Dutch Branch 100% Wholly owned 35 Hanover Equador LLC Delaware Limited Liability Company 100% Wholly owned 36 Hanover General Energy Transfer, LLC Delaware Limited Liability Company 100% Wholly owned 37 Hanover Global Limited Nigerian Corporation 51% Owned 38 Hanover HL Holdings, LLC Delaware Limited Liability Company 100% Wholly owned 39 Hanover HL, LLC Delaware Limited Liability Company 100% Wholly owned 40 Hanover IDR, Inc. Delaware Corporation 100% Wholly owned 41 Hanover International, S.A. (FKA Hanover DR Compression Services, S.A.) Switzerland Corporation 100% Wholly owned 42 Hanover Limited Energy Transfer, LLC Delaware Limited Liability Company 100% Wholly owned 43 Hanover Malaysia SDN, BHD. Malaysia Company 60% Owned 44 Hanover Maloney, Inc. Alberta Corporation (Canada) 100% Wholly owned 45 Hanover (GB) Ltd. (f/k/a Hanover Maloney Limited) United Kingdom Company 100% Wholly owned 46 Hanover Measurement , LLC Delaware Limited Liability Company 100% Wholly owned 47 Hanover Measurement Services Company, LP Delware Limited Partnership 50.3903468% Owned 48 Hanover Nigeria Energy Services Limited Nigerian Corporation 100% Wholly owned 49 Hanover Partners Nigeria LLC Delaware Limited Liability Company 100% Wholly owned 50 Hanover Peru Selva S.r.L. Peruvian Company 100% Wholly owned 51 Hanover Power (Gates) LLC Delaware Limited Liability Company 100% Wholly owned 52 Hanover Power, LLC Delaware Limited Liability Company 100% Wholly owned 53 Hanover SPE, L.L.C. Delaware Limited Liability Company 100% Wholly owned 54 Hanover Trade Corp. Barbados Corporation 100% Wholly owned 55 Hanover Wells Hall, Inc. Alberta Corporation (Canada) 100% Wholly owned 56 Hanover/Cosacol Consortium Columbian Consortium 100% Wholly owned 57 Hanover/Enron Venezuela, Ltd. Cayman Islands Company 100% Wholly owned 58 Hanover/Trinidad LLC Delaware Limited Liability Company 100% Wholly owned 59 Hanover Venezuela, C.A. (f/k/a Hanover-PGN Compressor, C.A.) Venezuela Corporation 100% Wholly owned 60 Harwat International Finance, N.V. Curacao Limited Liability Company 35.5% Owned 61 HC Cayman Ltd. Cayman Islands Company 100% Wholly owned 62 HC Cayman LLC Delaware Limited Liability Company 100% Wholly owned 63 HC Leasing, Inc. Delaware Corporation 100% Wholly owned 64 HCC Holdings, Inc. Delaware Corporation 100% Wholly owned 65 HCC Mantova, S.r.L. Italian Corporation 100% Wholly owned 66 HCL Colombia, Inc. Delaware Corporation 100% Wholly owned 67 HCM Compression S. de R.L. de C.V. Mexican Corporation 100% Wholly owned 68 Houston Flow Measurement, Inc. Texas Corporation 49.799% Owned 69 KOG, Inc. (f/k/a Kamlok Oil & Gas, Inc.) Delaware Corporation 100% Wholly owned 70 Maloney Industries (France) S.A. French Corporation 100% Wholly owned 71 Maloney Industries International Ltd. Alberta Corporation (Canada) 100% Wholly owned 72 Mid Continent Measurement, Inc. Oklahoma Corporation 49.799% Owned 73 Nigerian Leasing, LLC Delaware Limited Liability Company 100% Wholly owned 74 POI Mexico Service Company S. de R.L. Mexico Limited Liability Company 100% Wholly owned 75 POI Operating Company S. de R.L. Mexico Limited Liability Company 100% Wholly owned 76 Production Operators Cayman, Inc. Cayman Islands Corporation 100% Wholly owned 77 Production Operators Cayman (Pigap II) Ltd. Cayman Islands Corporation 100% Wholly owned 78 Production Operators Argentina S.A. Argentina Corporation 100% Wholly owned 79 P.T. Hanover Indonesia Indonesian Corporation 100% Wholly owned 80 Servi Compressores, C.A. Venezuelan Corporation 100% Wholly owned 81 Servicios Tipsa, S.A. Argentina Corporation 100% Wholly owned 82 Simco Consortium Venezuela Consortium 35.5% Wholly owned 83 Southwest Industries Inc. Delaware Corporation 100% Wholly owned 84 Topline Mechanical, Inc. Canadian Corporation 24.1% Owned 85 WilPro Energy Services (El Furrial) Limited Cayman Islands Limited Liability Company 33.33% owned 86 WilPro Energy Services (Guara) Limited Cayman Islands Limited Liability Company 100% Wholly owned 87 WilPro Energy Services (PIGAP II) Limited Cayman Islands Company 30% owned For the following - equity owned by GE Capital: Hanover Equipment Trust 2001 A Delaware Trust 100% Wholly owned Hanover Equipment Trust 2001 B Delaware Trust 100% Wholly owned
EX-23.1 23 h12863exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-106386) and on Form S-8 (Nos. 333-107659, 333-73904, 333-55978, 333-53446, 333-32096, 333-32092 and 333-65923) of Hanover Compressor Company of our report dated March 11, 2004 relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Houston, Texas March 26, 2004 EX-31.1 24 h12863exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Chad C. Deaton, certify that: 1. I have reviewed this Annual Report on Form 10-K of Hanover Compressor Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 26, 2004 By: /S/ CHAD C. DEATON --------------------------------------------- Name: Chad C. Deaton Title: President and Chief Executive Officer (Principal Executive Officer) EX-31.2 25 h12863exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John E. Jackson, certify that: 1. I have reviewed this Annual Report on Form 10-K of Hanover Compressor Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 26, 2004 By: /S/ JOHN E. JACKSON ----------------------------------------------------- Name: John E. Jackson Title: Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-32.1 26 h12863exv32w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Hanover Compressor Company (the "Company") for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Chad C. Deaton, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ CHAD C. DEATON - ------------------------------ Name: Chad C. Deaton Title: Chief Executive Officer Date: March 26, 2004 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. EX-32.2 27 h12863exv32w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Hanover Compressor Company (the "Company") for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), John E. Jackson, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ JOHN E. JACKSON - -------------------------------- Name: John E. Jackson Title: Chief Financial Officer Date: March 26, 2004 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. -----END PRIVACY-ENHANCED MESSAGE-----


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For fiscal year ended December 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to .


Delaware		76-0625124
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


Title of Each Class		Name of Each Exchange in Which Registered

Common Stock, $.001 par value		New York Stock Exchange


			Page

PART I
	Item 1.	Business		3
	Item 2.	Properties		19
	Item 3.	Legal Proceedings		20
	Item 4.	Submission of Matters to a Vote of Security Holders		23
PART II
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		24
	Item 6.	Selected Financial Data		25
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		67
	Item 8.	Financial Statements and Supplementary Data		68
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		68
	Item 9A.	Controls and Procedures		68
PART III
	Item 10.	Directors and Executive Officers of Hanover		69
	Item 11.	Executive Compensation		69
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		69
	Item 13.	Certain Relationships and Related Transactions		71
	Item 14.	Principal Accounting Fees and Services		71
PART IV
	Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		72
SIGNATURES				80
Amended Bylaws
Indenture for 4.75% Convertible Senior Notes
Form of 4.75% Convertible Senior Notes
Form of 8.50% Senior Secured Notes
Form of 8.75% Senior Secured Notes
Form of Zero Coupon Subordinated Notes
Form of 8.625% Senior Notes
Form 4.75% Convertible Senior Notes
Registration Rights Agreement
PIGAP Settlement Agreement
Offset Rights Agreement
Hanover Guarantee
Subsidiaries' Guarantee
Amend.to Guarantees,Credit & Participation Agmt
Amend.No.1 to Agreement and Plan of Merger
Amend.No.2 to Agreement and Plan of Merger
Separation Agreement with Mark Berg
Computation of Ratio of Earnings to Fixed Charges
Guide to Ethical Business Conduct
List of Subsidiaries
Consent of PricewaterhouseCoopers LLP
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906


				Aggregate
		Number		Horsepower		% of
Range of Horsepower Per Unit		of Units		(In thousands)		Horsepower


0-100			2,006		119		3.4	%
101-200			1,387		221		6.3	%
201-500			1,200		408		11.6	%
501-800.			765		503		14.3	%
801-1,100			372		374		10.6	%
1,101-1,500			903		1,271		36.2	%
1,501-2,500			197		364		10.4	%
2,501-4,450			76		253		7.2	%

	Total		6,906		3,513		100.0	%


Name	Age		Position

Chad C. Deaton		51	President and Chief Executive Officer; Director
John E. Jackson		45	Senior Vice President— Chief Financial Officer
Mark S. Berg*		45	Senior Vice President— General Counsel and Secretary
Peter G. Schreck		40	Vice President— Treasury and Planning
Stephen P. York		47	Vice President and Corporate Controller


			Square
Location	Status		Feet		Uses

Broken Arrow, Oklahoma		Owned		127,505	Compressor and accessory fabrication
Davis, Oklahoma		Owned		393,870	Compressor and accessory fabrication
Houston, Texas		Owned		256,505	Compressor and accessory fabrication
Houston, Texas		Leased		51,941	Office
Anaco, Venezuela		Leased		10,000	Compressor rental and service
Casper, Wyoming		Owned		28,390	Compressor rental and service
Comodoro Rivadavia, Argentina		Leased		21,000	Compressor rental and service
Comodoro Rivadavia, Argentina		Owned		26,000	Compressor rental and service
Farmington, New Mexico		Owned		20,361	Compressor rental and service
Gillette, Wyoming		Leased		10,200	Compressor rental and service
Houston, Texas		Leased		13,200	Compressor rental and service
Kilgore, Texas		Owned		33,039	Compressor rental and service
Maturin, Venezuela		Owned		20,000	Compressor rental and service
Midland, Texas		Owned		53,300	Compressor rental and service
Neuquen, Argentina		Owned		30,000	Compressor rental and service
Pampa, Texas		Leased		24,000	Compressor rental and service
Pocola, Oklahoma		Owned		18,705	Compressor rental and service
Santa Cruz, Bolivia		Leased		32,200	Compressor rental and service
Victoria, Texas		Owned		21,840	Compressor rental and service
Victoria, Texas		Leased		18,083	Compressor rental and service
Walsall, UK–Redhouse		Owned		15,300	Compressor rental and service
Walsall, UK–Westgate		Owned		44,700	Compressor rental and service
Yukon, Oklahoma		Owned		22,453	Compressor rental and service
Odessa, Texas		Owned		15,751	Parts, service and used equipment
Houston, Texas		Leased		28,750	Parts, service and used equipment
Houston, Texas		Leased		73,450	Parts, service and used equipment
Odessa, Texas		Owned		30,281	Parts, service and used equipment
Broussard, Louisiana		Owned		74,402	Production and processing equipment fabrication
Calgary, Alberta, Canada		Owned		95,000	Production and processing equipment fabrication
Columbus, Texas		Owned		219,552	Production and processing equipment fabrication
Corpus Christi, Texas		Owned		11,000	Production and processing equipment fabrication
Dubai, UAE		Owned		33,128	Production and processing equipment fabrication
Hamriyah Free Zone, UAE		Owned		12,628	Production and processing equipment fabrication


Cash	$	30,050
Estimated fair value of note to be issued		3,633
Common stock to be issued by Hanover		29,800
Legal fees and administrative costs		6,178

Total		69,661
Less: insurance recoveries		(26,670	)

Net litigation settlement	$	42,991


Item 4.	*Submission of Matters to a Vote of Security Holders*


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*



	Price

	High		Low
Year ended December 31, 2002
First Quarter	$	25.52	$	10.50
Second Quarter	$	20.33	$	11.56
Third Quarter	$	13.50	$	6.80
Fourth Quarter	$	11.98	$	6.20
Year ended December 31, 2003
First Quarter	$	10.10	$	6.00
Second Quarter	$	11.70	$	6.85
Third Quarter	$	12.19	$	9.00
Fourth Quarter	$	11.50	$	9.21



				Years Ended December 31,

				2003			2002			2001(1)			2000(1)		1999(1)


				(in thousands, except per share data)
Income Statement Data:
	Revenues and other income:
		Domestic rentals		$	324,186		$	328,600		$	269,679		$	172,517	$	136,430
		International rentals			206,404			189,700			131,097			81,320		56,225
		Parts, service and used equipment			169,023			223,845			214,872			113,526		39,130
		Compressor and accessory fabrication			106,896			114,009			223,519			90,270		52,531
		Production and processing equipment fabrication			260,660			149,656			184,040			79,121		27,255
		Equity in income of non-consolidated affiliates			23,088			18,811			9,350			3,518		1,188
		Gain on change in interest in non-consolidated affiliate			—			—			—			864		—
		Other			5,093			4,189			8,403			5,688		5,371

			Total revenues (2)		1,095,350			1,028,810			1,040,960			546,824		318,130

	Expenses:
		Domestic rentals			127,425			122,172			95,203			60,336		46,184
		International rentals			67,465			57,579			45,795			27,656		18,765
		Parts, service and used equipment			126,619			179,844			152,701			79,958		26,504
		Compressor and accessory fabrication			96,922			99,446			188,122			76,754		43,663
		Production and processing equipment fabrication			234,203			127,442			147,824			62,684		20,278
		Selling, general and administrative			161,655			153,676			92,172			51,768		33,782
		Foreign currency translation			2,548			16,753			6,658			—		—
		Provision for cost of litigation settlement (5)			42,991			—			—			—		—
		Other			2,906			27,607			9,727			—		—
		Depreciation and amortization (3)(4)			172,602			151,181			88,823			52,188		37,337
		Goodwill impairment (3)			35,466			52,103			—			—		—
		Leasing expense (4)			43,139			90,074			78,031			45,484		22,090
		Interest expense (4)			89,175			43,352			23,904			15,048		9,064

					1,203,116			1,121,229			928,960			471,876		257,667

Income (loss) from continuing operations before income taxes					(107,766	)		(92,419	)		112,000			74,948		60,463
Provision for (benefit from) income taxes					784			(17,576	)		42,388			27,818		22,008

Income (loss) from continuing operations					(108,550	)		(74,843	)		69,612			47,130		38,455
Income (loss) from discontinued operations, net of tax(2)					(12,799	)		(41,225	)		2,965			2,509		—
Cumulative effect of accounting change, net of tax(4)					(86,910	)		—			(164	)		—		—

Net income (loss)				$	(208,259	)	$	(116,068	)	$	72,413		$	49,639	$	38,455

Earnings (loss) per common share:
Basic earnings (loss) per common share from continuing operations				$	(1.34	)	$	(0.94	)	$	0.96		$	0.76	$	0.67

Diluted earnings (loss) per common share from continuing operations				$	(1.34	)	$	(0.94	)	$	0.91		$	0.71	$	0.63

Weighted average common and common equivalent shares:
Basic					81,123			79,500			72,355			61,831		57,048

Diluted					81,123			79,500			81,175			66,366		61,054


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


	*Revenue Recognition — Percentage of Completion Accounting*


Rental fleet asset impairment (in Depreciation and amortization)		$	14,334
Cumulative effect of accounting change-FIN 46			133,707
Securities-related litigation settlement			42,991
Belleli goodwill impairment (in Goodwill impairment)			35,466
Write-off of deferred financing costs (in Depreciation and amortization)			2,461
Loss on sale/write-down of discontinued operations			21,617

	Total	$	250,576


Item 1.	*Business*


Item 2.	*Properties*


Item 3.	*Legal Proceedings*


Item 6.	*Selected Financial Data*



	Years ended December 31,
					Increase
	2003		2002		(Decrease)

Revenue	$	324,186	$	328,600		(1)	%
Operating expense		127,425		122,172		4	%

Gross profit	$	196,761	$	206,428		(5)	%
Gross margin		61%		63%		(2)	%


Inventory reserves (in Parts and service and used equipment expense)		$	6,800
Severance and other charges (in Selling, general and administrative)			6,160
Write-off of idle equipment and assets to be sold or abandoned (in Depreciation and amortization)			34,485
Goodwill impairments			52,103
Non-consolidated affiliate write-downs/charges (in Other expense)			15,950
Write-down of discontinued operations			58,282
Note receivable reserves (in Other expense)			8,454
Write-off of abandoned purchase option (in Other expense)			500

	Total	$	182,734


			Residual				Minority
	Sale		Value		Lease		Interest
	Proceeds		Guarantee		Termination Date		Obligation
Lease
March and August 2000	$	200,000	$	166,000		March 2005	$	6,400
October 2000		172,589		142,299		October 2005		5,178
August 2001		309,300		232,000		September 2008		9,300
August 2001		257,750		175,000		September 2011		7,750

	$	939,639	$	715,299			$	28,628


For the Year Ended December 31:	2003			2002

Net cash provided by (used in) continuing operations:
Operating activities	$	161,529		$	194,876
Investing activities		(67,177	)		(175,064	)
Financing activities		(65,919	)		(3,348	)
Effect of exchange rate changes on cash and cash equivalents		800			(1,962	)
Net cash provided by (used in) discontinued operations		8,375			(18,682	)

Net change in cash and cash equivalents	$	37,608		$	(4,180	)


			Total		2004		2005-2006		2007-2008		Thereafter
Cash Contractual Obligations:

			(In thousands)
Long term Debt
	4.75% convertible senior notes due 2008		$	192,000	$	—	$	—	$	192,000	$	—
	4.75% convertible senior notes due 2014			143,750		—		—		—		143,750
	7.25% subordinated convertible securities due 2029			86,250		—		—		—		86,250
	8.625% senior notes due 2010			200,000		—		—		—		200,000
	11% zero coupon subordinated notes due 2007(1)			262,622		—		—		262,622		—
	Bank credit facility due 2006			27,000		—		27,000		—		—
	Other long-term debt			4,792		3,511		1,018		86		177
	2000A equipment lease notes, due 2005			193,600		—		193,600		—		—
	2000B equipment lease notes, due 2005			167,411		—		167,411		—		—
	2001A equipment lease notes, due 2008			300,000		—		—		300,000		—
	2001B equipment lease notes, due 2011			250,000		—		—		—		250,000

		Total long-term debt		1,827,425		3,511		389,029		754,708		680,177
Minority interest obligations(2)				28,628		—		11,578		9,300		7,750
Purchase commitments				45,181		42,139		2,816		226		—
Facilities and other equipment operating leases				12,698		4,447		4,921		2,735		595

Total contractual cash obligations			$	1,913,932	$	50,097	$	408,344	$	766,969	$	685,522


			Standard
	Moody’s		& Poor’s

Outlook		Stable		Negative
Senior implied rating		B1		BB-
Bank credit facility due December 2006		Ba3		—
4.75% convertible senior notes due 2008		B3		—
4.75% convertible senior notes due 2014		B3		B
8.625% senior notes due 2010		B3		B
2001A equipment lease notes, interest at 8.5%, due September 2008		B2		—
2001B equipment lease notes, interest at 8.8%, due September 2011		B2		—
Zero coupon subordinated notes, interest at 11%, due March 31, 2007		Caa1		B-
7.25% convertible subordinated notes due 2029*		Caa1		—
Senior secured		—		B+
Senior unsecured		—		B


Lease	Maturity Date	Strike Rate	Notional Amount

March 2000	March 11, 2005	5.2550%	$100,000,000
August 2000	March 11, 2005	5.2725%	$100,000,000
October 2000	October 26, 2005	5.3975%	$100,000,000


			Maximum Potential
			Undiscounted
			Payments as of
	Term		December 31, 2003

Simco/ Harwat Consortium		2005	$	12,285
El Furrial		2013	$	40,021


	We have a substantial amount of debt, including our compression equipment lease obligations, that could limit our ability to fund future growth and operations and increase our exposure during adverse economic conditions.


	*We will need to generate a significant amount of cash to service our debt, to fund working capital and to pay our debts as they come due.*


	The documents governing our outstanding debt, including our compression equipment lease obligations, contain financial and other restrictive covenants. Failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on us.


	*We have significant leverage relative to our total capitalization, which could result in a further downgrade in our credit rating if we do not reduce our leverage.*


	We are still in the process of improving our infrastructure capabilities, including our internal controls and procedures, which were strained by our rapid growth, to reduce the risk of future accounting and financial reporting problems.


	*Unforeseen difficulties with the implementation of our enterprise resource planning system could adversely affect our internal controls and our business.*


	*We require a substantial amount of capital to expand our compressor rental fleet and our complementary businesses.*


	Our ability to substitute compressor equipment under our compressor equipment leases is limited and there are risks associated with reaching that limit prior to the expiration of the lease term.


								Substitution
								Limitation as
		Value of		Percentage of				Percentage of		Lease
		Substituted		Termination		Termination		Termination		Termination
Lease		Equipment		Value(1)		Value(1)		Value		Date


		(dollars in millions)
March and August 2000		$	26.1		13.1%	$	200.0		25%		March 2005
October 2000			24.0		13.9%		172.6		25%		October 2005
August 2001			27.3		8.8%		309.3		25%		September 2008
August 2001			25.2		9.8%		257.7		25%		September 2011

	Total	$	102.6			$	939.6


(1)	Termination value assumes all accrued rents paid before termination.


	*A prolonged, substantial reduction in oil or gas prices, or prolonged instability in domestic or global energy markets, could adversely affect our business.*


	*There are many risks associated with conducting operations in international markets.*