Exhibit 10.81

 

--------------------------------------------------------------------------------

 

GUARANTEE AND COLLATERAL AGREEMENT

 

made by

 

HANOVER COMPRESSOR COMPANY

 

HANOVER COMPRESSION LIMITED PARTNERSHIP

 

and certain of their Subsidiaries

 

in favor of

 

JPMORGAN CHASE BANK,

 

as Administrative Agent

 

Dated as of January 31, 2003

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

TABLE OF CONTENTS

 

         

Page

--------------------------------------------------------------------------------

SECTION 1.

  

DEFINED TERMS

  

1

1.1

  

Definitions

  

1

1.2

  

Other Definitional Provisions

  

4

SECTION 2.

  

GUARANTEE

  

5

2.1

  

Guarantee

  

5

2.2

  

Right of Contribution

  

5

2.3

  

No Subrogation

  

5

2.4

  

Amendments, etc. with respect to HCC Obligations

  

6

2.5

  

Guarantee Absolute and Unconditional

  

6

2.6

  

Reinstatement

  

7

2.7

  

Payments

  

7

SECTION 3.

  

GRANT OF SECURITY INTEREST

  

7

SECTION 4.

  

REPRESENTATIONS AND WARRANTIES

  

8

4.1

  

Title; No Other Liens

  

8

4.2

  

Perfected First Priority Liens

  

8

4.3

  

Jurisdiction of Organization; Chief Executive Office

  

9

4.4

  

[Intentionally Reserved]

  

9

4.5

  

Farm Products

  

9

4.6

  

Investment Property

  

9

4.7

  

Receivables

  

9

4.8

  

Intellectual Property

  

9

SECTION 5.

  

COVENANTS

  

9

5.1

  

Delivery of Instruments, Certificated Securities and Chattel Paper

  

10

5.2

  

Maintenance of Insurance

  

10

5.3

  

[Intentionally Reserved]

  

10

5.4

  

Maintenance of Perfected Security Interest; Further Documentation

  

10

5.5

  

Changes in Locations, Name, etc

  

11

5.6

  

Notices

  

11

5.7

  

Investment Property

  

11

5.8

  

Receivables

  

12

5.9

  

Intellectual Property

  

12

5.10

  

Vehicles

  

13

SECTION 6.

  

REMEDIAL PROVISIONS

  

13

6.1

  

Certain Matters Relating to Receivables

  

13

6.2

  

Communications with Obligors; Grantors Remain Liable

  

13

6.3

  

Pledged Stock

  

14

6.4

  

Proceeds to be Turned Over To Administrative Agent

  

15

6.5

  

Application of Proceeds

  

15

6.6

  

Code and Other Remedies

  

15

6.7

  

Private Sales

  

16

6.8

  

Deficiency

  

16

 

i

--------------------------------------------------------------------------------

SECTION 7.

  

THE ADMINISTRATIVE AGENT

  

16

7.1

  

Administrative Agent’s Appointment as Attorney-in-Fact, etc

  

16

7.2

  

Duty of Administrative Agent

  

18

7.3

  

Execution of Financing Statements

  

18

7.4

  

Authority of Administrative Agent

  

18

SECTION 8.

  

MISCELLANEOUS

  

19

8.1

  

Amendments in Writing

  

19

8.2

  

Notices

  

19

8.3

  

No Waiver by Course of Conduct; Cumulative Remedies

  

19

8.4

  

[Intentionally Reserved]

  

19

8.5

  

Successors and Assigns

  

19

8.6

  

Set-Off

  

19

8.7

  

Counterparts

  

20

8.8

  

Severability

  

20

8.9

  

Section Headings

  

20

8.10

  

Integration

  

20

8.11

  

GOVERNING LAW

  

20

8.12

  

Submission To Jurisdiction; Waivers

  

20

8.13

  

Acknowledgements

  

20

8.14

  

Additional Grantors

  

21

8.15

  

Releases

  

21

8.16

  

WAIVER OF JURY TRIAL

  

21

SCHEDULES

         

Schedule 1

  

Notice Addresses

    

Schedule 2

  

Perfection Matters

    

Schedule 3

  

Jurisdictions of Organization and Chief Executive Offices

    

 

ii

--------------------------------------------------------------------------------

GUARANTEE AND COLLATERAL AGREEMENT

 

GUARANTEE AND COLLATERAL AGREEMENT, dated as of January 31, 2003, made by each
of the signatories hereto (together with any other entity that may become a
party hereto as provided herein, the “Grantors”), in favor of JPMorgan Chase
Bank, as Administrative Agent (in such capacity, the “Administrative Agent”) for
the banks and other financial institutions or entities (the “Lenders”) from time
to time parties to the Credit Agreement, dated as of December 15, 1997 as
amended and restated on December 3, 2001 (as may be further amended,
supplemented or otherwise modified from time to time, the “Senior Credit
Agreement”), among Hanover Compressor Company (“Holdings”), Hanover Compression
Limited Partnership (formerly known as Hanover Compression Inc.) (“HCC”), the
Lenders and the Administrative Agent.

 

WITNESSETH:

 

WHEREAS, pursuant to the Senior Credit Agreement, the Lenders have severally
agreed to make extensions of credit to HCC upon the terms and subject to the
conditions set forth therein;

 

WHEREAS, Holdings is a member of an affiliated group of companies that includes
each other Grantor;

 

WHEREAS, the proceeds of the extensions of credit under the Senior Credit
Agreement have been and will continue to be used in part to enable HCC to make
valuable transfers to one or more of the other Grantors in connection with the
operation of their respective businesses;

 

WHEREAS, HCC and the other Grantors are engaged in related businesses, and each
Grantor will derive substantial direct and indirect benefit from the continued
making of the extensions of credit under the Senior Credit Agreement; and

 

WHEREAS, it is a condition precedent to the effectiveness of the amendment dated
as of January 31, 2003 to the Senior Credit Agreement, the Participation
Agreements, the Synthetic Credit Agreements and the Synthetic Guarantees (each
as defined in the Amendment), among Holdings, HCC, the Administrative Agent and
the Lenders parties thereto (the “Amendment”) that the Grantors shall have
executed and delivered this Agreement 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 approve the Amendment and to induce the
Lenders to continue to make their respective extensions of credit to HCC under
the Senior Credit Agreement, each Grantor hereby agrees with the Administrative
Agent, for the ratable benefit of the Lenders, as follows:

 

SECTION 1. DEFINED TERMS

 

1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the
Senior Credit Agreement, the Participation Agreements and the Synthetic
Guarantees are used herein as therein defined, and the following terms are used
herein as defined in the New York UCC: Accounts, Certificated Security, Chattel
Paper, Commercial Tort Claims, Documents, Equipment, Farm Products, General
Intangibles, Instruments, Inventory, Letter-of-Credit Rights and Supporting
Obligations.

 

(b) The following terms shall have the following meanings:

--------------------------------------------------------------------------------

 

“Agreement”: this Guarantee and Collateral Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.

 

“Collateral”: as defined in Section 3.

 

“Collateral Account”: any collateral account established by the Administrative
Agent as provided in Section 6.1 or 6.4.

 

“Copyrights”: (i) all copyrights arising under the laws of the United States,
any other country or any political subdivision thereof, whether registered or
unregistered and whether published or unpublished, all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, and (ii) the right to obtain all renewals thereof.

 

“Copyright Licenses”: any written agreement naming any Grantor as licensor or
licensee, granting any right under any Copyright, including, without limitation,
the grant of rights to manufacture, distribute, exploit and sell materials
derived from any Copyright.

 

“Excluded Equipment Lease Property”: any property or assets of any Grantor that
is subject to a Lien that secures any Equipment Lease Transaction (other than
the second liens granted pursuant to paragraph 18 of the Amendment).
Notwithstanding anything to the contrary contained herein, it is intended that
the Excluded Equipment Lease Property shall in no event be pledged hereunder or
required to be pledged hereunder as long as such Property secures an Equipment
Lease Transaction (other than the second liens granted pursuant to paragraph 18
of the Amendment).

 

“Excluded Foreign Subsidiary Stock”: any shares of Capital Stock of Foreign
Subsidiaries exceeding 66% of the outstanding voting Capital Stock of each
Foreign Subsidiary. Notwithstanding anything to the contrary contained herein,
it is intended that such Excluded Foreign Subsidiary Stock shall in no event be
pledged hereunder or required to be pledged hereunder.

 

“Deposit Account”: as defined in the Uniform Commercial Code of any applicable
jurisdiction and, in any event, including, without limitation, any demand, time,
savings, passbook or like account maintained with a depositary institution.

 

“Derivatives Agreements”: any agreement entered into by Holdings or any of its
Subsidiaries pursuant to Subsection 8.9 of the Senior Credit Agreement.

 

“Foreign Subsidiary”: any Subsidiary organized under the laws of any
jurisdiction outside the United States of America.

 

“Foreign Subsidiary Voting Stock”: the voting Capital Stock of any Foreign
Subsidiary.

 

“Guarantor Obligations”: with respect to any Guarantor, all obligations and
liabilities of such Guarantor which may arise under or in connection with this
Agreement (including, without limitation, Section 2) or any other Loan Document
to which such Guarantor is a party, in each case whether on account of guarantee
obligations, 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
such Guarantor pursuant to the terms of this Agreement or any other Loan
Document).

 

2

--------------------------------------------------------------------------------

 

“Guarantors”: the collective reference to each Grantor other than HCC and
Non-Guarantor Subsidiaries.

 

“HCC Obligations”: the collective reference to the unpaid principal of and
interest on the Loans and Reimbursement Obligations and all other obligations
and liabilities of HCC (including, without limitation, interest accruing at the
then applicable rate provided in the Senior Credit Agreement after the maturity
of the Loans and Reimbursement Obligations and interest accruing at the then
applicable rate provided in the Senior Credit Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to HCC, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) to the Administrative
Agent or any Lender (or, in the case of any Derivatives Agreements, any
Affiliate of any Lender) whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, the Senior Credit Agreement, this Agreement, the
other Loan Documents, any Letter of Credit, any Derivatives Agreements or any
other document made, delivered or given in connection with any of the foregoing,
in each case 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 HCC pursuant to the terms of any
of the foregoing agreements).

 

“Intellectual Property”: the collective reference to all rights, priorities and
privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including, without
limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent
Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at
law or in equity for any infringement or other impairment thereof, including the
right to receive all proceeds and damages therefrom.

 

“Intercompany Note”: any promissory note evidencing loans made by any Grantor to
Holdings or any of its Subsidiaries.

 

“Investment Property”: the collective reference to (i) all “investment property”
as such term is defined in Section 9-102(a)(49) of the New York UCC (other than
Excluded Foreign Subsidiary Stocks) and (ii) whether or not constituting
“investment property” as so defined, all Pledged Notes and all Pledged Stock.

 

“Issuers”: the collective reference to each issuer of any Investment Property.

 

“New York UCC”: the Uniform Commercial Code as from time to time in effect in
the State of New York.

 

“Obligations”: (i) in the case of HCC and each Non-Guarantor Subsidiary, HCC
Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations.

 

“Non-Guarantor Subsidiary”: each Subsidiary identified only as a Grantor on the
signature pages hereto together with each Subsidiary which is required to
execute this Agreement pursuant to subsection 7.10 of the Senior Credit
Agreement unless, in each case, (i) such Subsidiary has guaranteed payment of
all or any portion of the Guarantee Obligations (as defined in the 2001A
Participation Agreement and 2001B Participation Agreement) or (ii) such
Subsidiary is requested to become a Guarantor by the Administrative Agent or the
Required Lenders.

 

“Patents”: (i) all letters patent of the United States, any other country or any
political subdivision thereof, all reissues and extensions thereof and all
goodwill associated therewith, (ii) all

 

3

--------------------------------------------------------------------------------

applications for letters patent of the United States or any other country and
all divisions, continuations and continuations-in-part thereof, and (iii) all
rights to obtain any reissues or extensions of the foregoing.

 

“Patent License”: all agreements, whether written or oral, providing for the
grant by or to any Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent.

 

“Pledged Notes”: all Intercompany Notes at any time issued to any Grantor and
all other promissory notes issued to or held by any Grantor (other than
promissory notes issued in connection with extensions of trade credit by any
Grantor in the ordinary course of business).

 

“Pledged Stock”: any shares, stock certificates, options, interests or rights of
any nature whatsoever in respect of the Capital Stock of any Person that may be
issued or granted to, or held by, any Grantor while this Agreement is in effect,
but excluding the Excluded Foreign Subsidiary Stock.

 

“Proceeds”: all “proceeds” as such term is defined in Section 9-102(a)(64) of
the New York UCC and, in any event, shall include, without limitation, all
dividends or other income from the Investment Property, collections thereon or
distributions or payments with respect thereto.

 

“Receivable”: any right to payment for goods sold or leased or for services
rendered, whether or not such right is evidenced by an Instrument or Chattel
Paper and whether or not it has been earned by performance (including, without
limitation, any Account).

 

“Securities Act”: the Securities Act of 1933, as amended.

 

“Trademarks”: (i) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos
and other source or business identifiers, and all goodwill associated therewith,
now existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common-law rights related thereto,
and (ii) the right to obtain all renewals thereof.

 

“Trademark License”: any agreement, whether written or oral, providing for the
grant by or to any Grantor of any right to use any Trademark.

 

“Vehicles”: all cars, trucks, trailers, construction and earth moving equipment
and other vehicles covered by a certificate of title law of any state and all
tires and other appurtenances to any of the foregoing.

 

1.2 Other Definitional Provisions. (a) The words “hereof,” “herein”, “hereto”
and “hereunder” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.

 

(b) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.

 

(c) Where the context requires, terms relating to the Collateral or any part
thereof, when used in relation to a Grantor, shall refer to such Grantor’s
Collateral or the relevant part thereof.

 

4

--------------------------------------------------------------------------------

 

SECTION 2. GUARANTEE

 

2.1 Guarantee. (a) This guarantee supplements the existing Holdings Guarantee
and the existing Subsidiaries Guarantee (each as defined in the Senior Credit
Agreement). 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 HCC
when due (whether at the stated maturity, by acceleration or otherwise) of HCC
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 (after giving effect to the right of contribution
established in Section 2.2).

 

(c) Each Guarantor agrees that HCC Obligations may at any time and from time to
time exceed the amount of the liability of such Guarantor hereunder without
impairing the guarantee contained in this Section 2 or affecting the rights and
remedies of the Administrative Agent or any Lender hereunder.

 

(d) The guarantee contained in this Section 2 shall remain in full force and
effect until all HCC Obligations and the obligations of each Guarantor under the
guarantee contained in this Section 2 shall have been satisfied by payment in
full, no Letter of Credit shall be outstanding and the Commitments shall be
terminated, notwithstanding that from time to time during the term of the Senior
Credit Agreement HCC may be free from any HCC Obligations.

 

(e) No payment made by HCC, any of the Guarantors, any other guarantor or any
other Person or received or collected by the Administrative Agent or any Lender
from HCC, 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
HCC Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of any Guarantor hereunder (other than any payment made by such
Person in respect of HCC Obligations or any payment received or collected from
such Person in respect of HCC Obligations). Each Guarantor shall remain liable
for the HCC Obligations up to the maximum liability of such Guarantor hereunder
until HCC Obligations are paid in full, no Letter of Credit shall be outstanding
and the Commitments are terminated

 

2.2 Right of Contribution. Each Subsidiary Guarantor hereby agrees that to the
extent that a Subsidiary Guarantor shall have paid more than its proportionate
share of any payment made hereunder, such Subsidiary Guarantor shall be entitled
to seek and receive contribution from and against any other Subsidiary Guarantor
hereunder which has not paid its proportionate share of such payment. Each
Subsidiary Guarantor’s right of contribution shall be subject to the terms and
conditions of Section 2.3. The provisions of this Section 2.2 shall in no
respect limit the obligations and liabilities of any Subsidiary Guarantor to the
Administrative Agent and the Lenders, and each Subsidiary Guarantor shall remain
liable to the Administrative Agent and the Lenders for the full amount
guaranteed by such Subsidiary Guarantor hereunder.

 

2.3 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder
or any set-off or application of funds of any Guarantor by the Administrative
Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of
the rights of the Administrative Agent or any Lender against HCC or any other
Guarantor or any collateral security or guarantee or right of offset held by the
Administrative Agent or any Lender for the payment of HCC Obligations, nor shall
any Guarantor seek or

 

5

--------------------------------------------------------------------------------

be entitled to seek any contribution or reimbursement from HCC 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 HCC on account of
HCC Obligations are paid in full, no Letter of Credit shall be outstanding 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 HCC 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 HCC Obligations, whether matured or unmatured, in such order
as the Administrative Agent may determine.

 

2.4 Amendments, etc. with respect to HCC Obligations. 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 HCC Obligations made by the
Administrative Agent or any Lender may be rescinded by the Administrative Agent
or such Lender and any of HCC Obligations continued, and HCC Obligations, or the
liability of any other Person 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 Senior Credit Agreement 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 or all 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 HCC 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 HCC Obligations or for the guarantee contained in
this Section 2 or any property subject thereto.

 

2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of HCC Obligations
and notice of or proof of reliance by the Administrative Agent or any Lender
upon the guarantee contained in this Section 2 or acceptance of the guarantee
contained in this Section 2; HCC 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 the guarantee contained in this
Section 2; and all dealings between HCC 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
the guarantee contained in this Section 2. Each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon HCC or any of the Guarantors with respect to HCC Obligations. Each
Guarantor understands and agrees that, to the fullest extent permitted under
applicable law, the guarantee contained in this Section 2 shall be construed as
a continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Senior Credit Agreement or any other
Loan Document, any of HCC 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 HCC or any other Person against the
Administrative Agent or any Lender, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of HCC or such Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of HCC for HCC Obligations, or of such Guarantor under the guarantee
contained in this Section 2, in bankruptcy or in any other instance. When making
any demand hereunder or otherwise pursuing its rights and remedies hereunder
against any Guarantor, the Administrative Agent or any Lender may, but shall be
under no obligation to, make a similar demand on

 

6

--------------------------------------------------------------------------------

or otherwise pursue such rights and remedies as it may have against HCC, any
other Guarantor or any other Person or against any collateral security or
guarantee for HCC Obligations or any right of offset with respect thereto, and
any failure by the Administrative Agent or any Lender to make any such demand,
to pursue such other rights or remedies or to collect any payments from HCC, any
other Guarantor or any other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
HCC, any other Guarantor or any other Person or any such collateral security,
guarantee or right of offset, shall not relieve any Guarantor of any obligation
or 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 or any Lender against any Guarantor. For the purposes hereof “demand”
shall include the commencement and continuance of any legal proceedings.

 

2.6 Reinstatement. The guarantee contained in this Section 2 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 HCC 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 HCC 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, HCC or any Guarantor or
any substantial part of its property, or otherwise, all as though such payments
had not been made.

 

2.7 Payments. Each Guarantor hereby guarantees that payments hereunder will be
paid to the Administrative Agent without set-off or counterclaim in Dollars at
the Funding Office.

 

SECTION 3. GRANT OF SECURITY INTEREST

 

Each Grantor hereby assigns and transfers to the Administrative Agent, and
hereby grants to the Administrative Agent, for the ratable benefit of the
Lenders, a security interest in, all of the following property now owned or at
any time hereafter acquired by such Grantor or in which such Grantor now has or
at any time in the future may acquire any right, title or interest
(collectively, the “Collateral”), as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of such Grantor’s Obligations,:

 

(a) all Accounts;

 

(b) all Chattel Paper;

 

(c) all Deposit Accounts;

 

(d) all Documents;

 

(e) all Equipment;

 

(f) all General Intangibles;

 

(g) all Instruments;

 

(h) all Intellectual Property;

 

(i) all Inventory;

 

(j) all Investment Property;

 

7

--------------------------------------------------------------------------------

 

(k) all Letter-of-Credit Rights;

 

(l) all Vehicles and title documents with respect to Vehicles;

 

(m) all other property not otherwise described above;

 

(n) all books and records pertaining to the Collateral; and

 

(o) to the extent not otherwise included, all Proceeds, Supporting Obligations
and products of any and all of the foregoing and all collateral security and
guarantees given by any Person with respect to any of the foregoing;

 

provided, however, that notwithstanding any of the other provisions set forth in
this Section 3, (i) this Agreement shall not constitute a grant of a security
interest in any property to the extent that such grant of a security interest is
prohibited by any Requirements of Law of a Governmental Authority, requires a
consent not obtained of any Governmental Authority pursuant to such Requirement
of Law or is prohibited by, or constitutes a breach or default under or results
in the termination of or requires any consent not obtained under, any contract,
license, agreement, instrument or other document evidencing or giving rise to
such property or, in the case of any Investment Property, Pledged Stock or
Pledged Note, any applicable shareholder or similar agreement, except to the
extent that such Requirement of Law or the term in such contract, license,
agreement, instrument or other document or shareholder or similar agreement
providing for such prohibition, breach, default or termination or requiring such
consent is ineffective under applicable law and (ii) the Collateral shall in no
event include the Excluded Foreign Subsidiary Stock or the Excluded Equipment
Lease Property.

 

SECTION 4. REPRESENTATIONS AND WARRANTIES

 

To induce the Administrative Agent and the Lenders to approve the Amendment and
to induce the Lenders to continue to make their respective extensions of credit
to HCC under the Senior Credit Agreement, each Grantor hereby represents and
warrants to the Administrative Agent and each Lender that:

 

4.1 Title; No Other Liens. Except for the security interest granted to the
Administrative Agent for the ratable benefit of the Lenders pursuant to this
Agreement and the other Liens permitted to exist on the Collateral by the Senior
Credit Agreement, such Grantor owns each item of the Collateral free and clear
of any and all Liens or claims of others. No financing statement or other public
notice with respect to all or any part of the Collateral is on file or of record
in any public office, except such as have been filed in favor of the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement or as are permitted by the Senior Credit Agreement.

 

4.2 Perfected First Priority Liens. The security interests granted pursuant to
this Agreement (a) constitute valid perfected security interests (to the extent
that such perfection may be achieved through the filing of a Uniform Commercial
Code financing statement in the appropriate filing office) in all of the
Collateral in favor of the Administrative Agent, for the ratable benefit of the
Lenders, as collateral security for such Grantor’s Obligations, enforceable in
accordance with the terms hereof against all creditors of such Grantor and any
Persons purporting to purchase any Collateral from such Grantor and (b) are
prior to all other Liens on the Collateral in existence on the date hereof
except for Liens permitted by the Senior Credit Agreement which have priority
over the Liens on the Collateral.

 

8

--------------------------------------------------------------------------------

 

4.3 Jurisdiction of Organization; Chief Executive Office. On the date hereof,
such Grantor’s jurisdiction of organization, identification number from the
jurisdiction of organization (if any), and the location of such Grantor’s chief
executive office or sole place of business or principal residence, as the case
may be, are specified on Schedule 3. Such Grantor has furnished to the
Administrative Agent a certified charter, certificate of incorporation or other
organization document and long-form good standing certificate as of a date which
is recent to the date hereof.

 

4.4 [Intentionally Reserved]

 

4.5 Farm Products. None of the Collateral constitutes, or is the Proceeds of,
Farm Products.

 

4.6 Investment Property. (a) The shares of Pledged Stock pledged by such Grantor
hereunder constitute all the issued and outstanding shares of all classes of the
Capital Stock of each Issuer owned by such Grantor or, in the case of Foreign
Subsidiary Voting Stock, if less, 66% of the outstanding Foreign Subsidiary
Voting Stock of each relevant Issuer.

 

(b) All the shares of the Pledged Stock have been duly and validly issued and
are fully paid and nonassessable.

 

(c) Each of the Pledged Notes constitutes the legal, valid and binding
obligation of the obligor with respect thereto, enforceable in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors’ rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.

 

(d) Such Grantor is the record and beneficial owner of, and has good and
marketable title to, the Investment Property pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person, except
(i) the security interest created by this Agreement, (ii) Liens permitted by
subsection 8.3(a) of the Senior Credit Agreement, and (iii) encumbrances and
minor irregularities of title that, in the aggregate, are not substantial in
amount and that in any case do not materially detract from the value of such
Investment Property.

 

4.7 Receivables. The amounts represented by such Grantor to the Lenders from
time to time as owing to such Grantor in respect of the Receivables will at such
times be accurate in all material respects.

 

4.8 Intellectual Property. (a) On the date hereof, all material Intellectual
Property is valid, subsisting, unexpired and enforceable, has not been abandoned
and does not infringe the intellectual property rights of any other Person.

 

(b) No holding, decision or judgment has been rendered by any Governmental
Authority which would limit, cancel or question the validity of, or such
Grantor’s rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.

 

(c) No action or proceeding is pending, or, to the knowledge of such Grantor,
threatened, on the date hereof (i) seeking to limit, cancel or question the
validity of any Intellectual Property or such Grantor’s ownership interest
therein, or (ii) which, if adversely determined, would have a material adverse
effect on the value of any Intellectual Property.

 

9

--------------------------------------------------------------------------------

 

SECTION 5. COVENANTS

 

Each Grantor covenants and agrees with the Administrative Agent and the Lenders
that, from and after the date of this Agreement until the Obligations shall have
been paid in full, no Letter of Credit shall be outstanding and the Commitments
shall have terminated:

 

5.1 Delivery of Instruments, Certificated Securities and Chattel Paper. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument, Certificated Security or Chattel Paper, such
Instrument, Certificated Security or Chattel Paper shall, if requested by the
Administrative Agent or the Required Lenders, be promptly delivered to the
Administrative Agent, duly indorsed in a manner satisfactory to the
Administrative Agent, to be held as Collateral pursuant to this Agreement.

 

5.2 Maintenance of Insurance. (a) Such Grantor will maintain, with financially
sound and reputable companies, insurance policies insuring such Grantor, the
Administrative Agent and the Lenders against liability for personal injury and
property damage relating to such Inventory, Equipment and Vehicles, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Administrative Agent and the Lenders.

 

(b) All such insurance shall (i) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be effective
until at least 30 days after receipt by the Administrative Agent of written
notice thereof, (ii) name the Administrative Agent as insured party or loss
payee, and (iii) be reasonably satisfactory in all other respects to the
Administrative Agent.

 

5.3 [Intentionally Reserved]

 

5.4 Maintenance of Perfected Security Interest; Further Documentation. (a) Such
Grantor shall maintain the security interest created by this Agreement as a
perfected security interest (it being agreed that, unless other means of
perfection have been requested by the Administrative Agent or the Required
Lenders, such perfected security interest is only to the extent that perfection
may be achieved through the filing of a Uniform Commercial Code financing
statement in the appropriate filing office) having at least the priority
described in Section 4.2 and shall defend such security interest against the
claims and demands of all Persons whomsoever, subject to the rights of such
Grantor under the Loan Documents to dispose of the Collateral.

 

(b) Such Grantor will furnish to the Administrative Agent and the Lenders from
time to time statements and schedules further identifying and describing the
assets and property of such Grantor and such other reports in connection
therewith as the Administrative Agent may reasonably request, all in reasonable
detail.

 

(c) At any time and from time to time, upon the written request of the
Administrative Agent, and at the sole expense of such Grantor, such Grantor will
promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Administrative
Agent may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, (i) filing any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby and
(ii) in the case of Investment Property, Deposit Accounts, Letter-of-Credit
Rights and any other relevant Collateral, taking any actions necessary to enable
the Administrative Agent to obtain “control” (within the meaning of the
applicable Uniform Commercial Code) with respect thereto.

 

(d) Notwithstanding any other provision of the Loan Documents to the contrary,
the Grantors shall not be required to take any action to perfect the security
interests created hereunder except for filing

 

10

--------------------------------------------------------------------------------

of properly completed Uniform Commercial Code financing statements in
appropriate filing offices unless otherwise requested by the Administrative
Agent or the Required Lenders.

 

5.5 Changes in Locations, Name, etc. Such Grantor will not, except upon 15 days’
prior written notice to the Administrative Agent and delivery to the
Administrative Agent of all additional executed financing statements and other
documents reasonably requested by the Administrative Agent to maintain the
validity, perfection and priority of the security interests provided for herein:

 

(i) change its jurisdiction of organization or the location of its chief
executive office or sole place of business or principal residence from that
referred to in Section 4.3; or

 

(ii) change its name.

 

5.6 Notices. Such Grantor will advise the Administrative Agent and the Lenders
promptly, in reasonable detail, of any Lien (other than security interests
created hereby or Liens permitted under the Senior Credit Agreement) on any of
the Collateral which would adversely affect the ability of the Administrative
Agent to exercise any of its remedies hereunder.

 

5.7 Investment Property. (a) If such Grantor shall become entitled to receive or
shall receive any certificate (including, without limitation, any certificate
representing a dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate issued in
connection with any reorganization), option or rights in respect of the Capital
Stock of any Issuer, whether in addition to, in substitution of, as a conversion
of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect
thereof, such Grantor shall, if requested by the Administrative Agent or the
Required Lenders, accept the same as the agent of the Administrative Agent and
the Lenders, hold the same in trust for the Administrative Agent and the Lenders
and deliver the same forthwith to the Administrative Agent in the exact form
received, duly indorsed by such Grantor to the Administrative Agent, if
required, together with an undated stock power covering such certificate duly
executed in blank by such Grantor and with, if the Administrative Agent so
requests, signature guaranteed, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Investment Property upon the liquidation or
dissolution of any Issuer shall be paid over to the Administrative Agent to be
held by it hereunder as additional collateral security for the Obligations, and
in case any distribution of capital shall be made on or in respect of the
Investment Property or any property shall be distributed upon or with respect to
the Investment Property pursuant to the recapitalization or reclassification of
the capital of any Issuer or pursuant to the reorganization thereof, the
property so distributed shall, unless otherwise subject to a perfected security
interest in favor of the Administrative Agent, if requested by the
Administrative Agent or the Required Lenders, be delivered to the Administrative
Agent to be held by it hereunder as additional collateral security for the
Obligations. If any sums of money or property so paid or distributed in respect
of the Investment Property shall be received by such Grantor, such Grantor
shall, until such money or property is paid or delivered to the Administrative
Agent, if requested by the Administrative Agent or the Required Lenders, hold
such money or property in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Grantor, as additional collateral security
for the Obligations.

 

(b) Without the prior written consent of the Administrative Agent, such Grantor
will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant
any option with respect to, the Investment Property or Proceeds thereof (except
pursuant to a transaction expressly permitted by the Senior Credit Agreement),
(ii) create, incur or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Investment Property or Proceeds
thereof, or any interest therein, except for the security interests created by
this Agreement or (iii) enter into any agreement or undertaking

 

11

--------------------------------------------------------------------------------

restricting the right or ability of such Grantor or the Administrative Agent to
sell, assign or transfer any of the Investment Property or Proceeds thereof.

 

(b) In the case of each Grantor which is an Issuer, such Issuer agrees that (i)
it will be bound by the terms of this Agreement relating to the Investment
Property issued by it and will comply with such terms insofar as such terms are
applicable to it and (ii) the terms of Sections 6.3(c) and 6.7(b) shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(c) or 6.7(b) with respect to the Investment Property
issued by it.

 

5.8 Receivables. Other than in the ordinary course of business, such Grantor
will not (i) grant any extension of the time of payment of any Receivable, (ii)
compromise or settle any Receivable for less than the full amount thereof, (iii)
release, wholly or partially, any Person liable for the payment of any
Receivable, (iv) allow any credit or discount whatsoever on any Receivable or
(v) amend, supplement or modify any Receivable in any manner that could
adversely affect the value thereof.

 

5.5 Intellectual Property. (a) Such Grantor (either itself or through licensees)
will not (and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any material Trademark may become
invalidated or impaired in any material way.

 

(b) Such Grantor (either itself or through licensees) will not do any act, or
omit to do any act, whereby any material Patent may become forfeited, abandoned
or dedicated to the public.

 

(c) Such Grantor (either itself or through licensees) will not (and will not
permit any licensee or sublicensee thereof to) do any act or knowingly omit to
do any act whereby any material portion of the Copyrights may become invalidated
or otherwise materially impaired. Such Grantor will not (either itself or
through licensees) do any act whereby any material portion of the Copyrights may
fall into the public domain.

 

(d) Such Grantor (either itself or through licensees) will not do any act that
knowingly uses any material Intellectual Property to infringe, in any material
way, the intellectual property rights of any other Person.

 

(e) Such Grantor will notify the Administrative Agent and the Lenders promptly
if it knows, or has reason to know, that any application or registration
relating to any material Intellectual Property may become forfeited, abandoned
or dedicated to the public, or of any material and adverse determination or
development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court or tribunal in
any country) regarding such Grantor’s ownership of, or the validity of, any
material Intellectual Property or such Grantor’s right to register the same or
to own and maintain the same.

 

(f) Whenever such Grantor, either by itself or through any agent, employee,
licensee or designee, shall file an application for the registration of any
Intellectual Property with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall, if so
requested by the Administrative Agent, report such filing to the Administrative
Agent within five Business Days after the last day of the fiscal quarter in
which such filing occurs. Upon request of the Administrative Agent, such Grantor
shall execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as the Administrative Agent may request to
evidence the Administrative Agent’s and the Lenders’ security interest in any
Copyright, Patent or Trademark and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby.

 

12

--------------------------------------------------------------------------------

 

(g) Such Grantor will take all reasonable and necessary steps, including,
without limitation, in any proceeding before the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.

 

(h) In the event that any material Intellectual Property is infringed,
misappropriated or diluted by a third party, such Grantor shall (i) take such
actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Administrative Agent after a Responsible Officer of such Grantor learns thereof
and sue for infringement, misappropriation or dilution, to seek injunctive
relief where appropriate and to recover any and all damages for such
infringement, misappropriation or dilution.

 

5.10 Vehicles. No Grantor shall be required to take any action to perfect any
security interest in Vehicles created pursuant to this Agreement.

 

SECTION 6. REMEDIAL PROVISIONS

 

6.1 Certain Matters Relating to Receivables. (a) The Administrative Agent hereby
authorizes each Grantor to collect such Grantor’s Receivables, and the
Administrative Agent may curtail or terminate said authority at any time after
the occurrence and during the continuance of an Event of Default. If required by
the Administrative Agent at any time after the occurrence and during the
continuance of an Event of Default, any payments of Receivables, when collected
by any Grantor, (i) shall be forthwith (and, in any event, within two Business
Days) deposited by such Grantor in the exact form received, duly indorsed by
such Grantor to the Administrative Agent if required, in a Collateral Account
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent for the account of the Lenders
only as provided in Section 6.5, and (ii) until so turned over, shall be held by
such Grantor in trust for the Administrative Agent and the Lenders, segregated
from other funds of such Grantor. Each such deposit of Proceeds of Receivables
shall be accompanied by a report identifying in reasonable detail the nature and
source of the payments included in the deposit.

 

(b) At the Administrative Agent’s request after the occurrence and during the
continuance of an Event of Default, each Grantor shall deliver to the
Administrative Agent all original and other documents evidencing, and relating
to, the agreements and transactions which gave rise to the Receivables,
including, without limitation, all original orders, invoices and shipping
receipts.

 

6.2 Communications with Obligors; Grantors Remain Liable. (a) The Administrative
Agent in its own name or in the name of others may at any time after the
occurrence and during the continuance of an Event of Default communicate with
obligors under the Receivables to verify with them to the Administrative Agent’s
satisfaction the existence, amount and terms of any Receivables.

 

(b) Upon the request of the Administrative Agent at any time after the
occurrence and during the continuance of an Event of Default, each Grantor shall
notify obligors on the Receivables that the Receivables have been assigned to
the Administrative Agent for the ratable benefit of the Lenders and that
payments in respect thereof shall be made directly to the Administrative Agent.

 

13

--------------------------------------------------------------------------------

 

(c) Anything herein to the contrary notwithstanding, each Grantor shall remain
liable under each of the Receivables to observe and perform all the conditions
and obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise thereto. Neither the Administrative
Agent nor any Lender shall have any obligation or liability under any Receivable
(or any agreement giving rise thereto) by reason of or arising out of this
Agreement or the receipt by the Administrative Agent or any Lender of any
payment relating thereto, nor shall the Administrative Agent or any Lender be
obligated in any manner to perform any of the obligations of any Grantor under
or pursuant to any Receivable (or any agreement giving rise thereto), to make
any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
thereunder, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.

 

6.3 Pledged Stock. (a) Unless an Event of Default shall have occurred and be
continuing and the Administrative Agent shall have given notice to the relevant
Grantor of the Administrative Agent’s intent to exercise its corresponding
rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive
all cash dividends paid in respect of the Pledged Stock and all payments made in
respect of the Pledged Notes, in each case paid in the normal course of business
of the relevant Issuer, to the extent permitted in the Senior Credit Agreement,
and to exercise all voting and corporate or other organizational rights with
respect to the Investment Property; provided, however, that no vote shall be
cast or corporate or other organizational right exercised or other action taken
which would be inconsistent with or result in any violation of any provision of
the Senior Credit Agreement, this Agreement or any other Loan Document.

 

(b) If an Event of Default shall occur and be continuing and the Administrative
Agent shall give notice of its intent to exercise such rights to the relevant
Grantor or Grantors, (i) the Administrative Agent shall have the right to
receive any and all cash dividends, payments or other Proceeds paid in respect
of the Investment Property and make application thereof to the Obligations in
such order as the Administrative Agent may determine, and (ii) any or all of the
Investment Property shall be registered in the name of the Administrative Agent
or its nominee, and the Administrative Agent or its nominee may thereafter
exercise (x) all voting, corporate and other rights pertaining to such
Investment Property at any meeting of shareholders of the relevant Issuer or
Issuers or otherwise and (y) any and all rights of conversion, exchange and
subscription and any other rights, privileges or options pertaining to such
Investment Property as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the
Investment Property upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate or other
organizational structure of any Issuer, or upon the exercise by any Grantor or
the Administrative Agent of any right, privilege or option pertaining to such
Investment Property, and in connection therewith, the right to deposit and
deliver any and all of the Investment Property with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall have no duty to any Grantor to exercise any such right, privilege or
option and shall not be responsible for any failure to do so or delay in so
doing.

 

(c) Each Grantor hereby authorizes and instructs each Issuer of any Investment
Property pledged by such Grantor hereunder to (i) comply with any instruction
received by it from the Administrative Agent in writing that (x) states that an
Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Grantor, and each Grantor agrees that each Issuer shall
be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Investment Property directly to the Administrative Agent.

 

14

--------------------------------------------------------------------------------

 

6.4 Proceeds to be Turned Over To Administrative Agent. In addition to the
rights of the Administrative Agent and the Lenders specified in Section 6.1 with
respect to payments of Receivables, if an Event of Default shall occur and be
continuing, all Proceeds received by any Grantor consisting of cash, checks and
other near-cash items shall be held by such Grantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of such
Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Administrative Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Administrative Agent, if required). All Proceeds
received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a Collateral
Account (or by such Grantor in trust for the Administrative Agent and the
Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 6.5.

 

6.5 Application of Proceeds. At such intervals as may be agreed upon by HCC and
the Administrative Agent, or, if an Event of Default shall have occurred and be
continuing, at any time at the Administrative Agent’s election, the
Administrative Agent may apply all or any part of Proceeds constituting
Collateral, whether or not held in any Collateral Account, in payment of the
Obligations in such order as the Administrative Agent may elect, and any part of
such funds which the Administrative Agent elects not so to apply and deems not
required as collateral security for the Obligations shall be paid over from time
to time by the Administrative Agent to HCC or to whomsoever may be lawfully
entitled to receive the same. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full, no Letters of Credit shall be
outstanding and the Commitments shall have terminated shall be paid over to HCC
or to whomsoever may be lawfully entitled to receive the same.

 

6.6 Code and Other Remedies. If an Event of Default shall occur and be
continuing, the Administrative Agent, on behalf of the Lenders, may exercise, in
addition to all other rights and remedies granted to them in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Administrative Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent or any Lender shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
the Collateral so sold, free of any right or equity of redemption in any
Grantor, which right or equity is hereby waived and released. Each Grantor
further agrees, at the Administrative Agent’s request, to assemble the
Collateral and make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at such Grantor’s premises
or elsewhere. The Administrative Agent shall apply the net proceeds of any
action taken by it pursuant to this Section 6.6, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or incidental
to the care or safekeeping of any of the Collateral or in any way relating to
the Collateral or the rights of the Administrative Agent and the Lenders
hereunder, including, without limitation, reasonable attorneys’ fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as the Administrative Agent may elect, and only after such application and
after the payment by the Administrative Agent of any other amount required by
any provision of law, including, without

 

15

--------------------------------------------------------------------------------

limitation, Section 9-615(a)(3) of the New York UCC, need the Administrative
Agent account for the surplus, if any, to any Grantor. To the extent permitted
by applicable law, each Grantor waives all claims, damages and demands it may
acquire against the Administrative Agent or any Lender arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition.

 

6.7 Private Sales. (a) Each Grantor recognizes that the Administrative Agent may
be unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Administrative
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.

 

(b) Each Grantor agrees to use its best efforts to do or cause to be done all
such other acts as may be necessary to make such sale or sales of all or any
portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and
in compliance with any and all other applicable Requirements of Law. Each
Grantor further agrees that a breach of any of the covenants contained in this
Section 6.7 will cause irreparable injury to the Administrative Agent and the
Lenders, that the Administrative Agent and the Lenders have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 6.7 shall be specifically enforceable against
such Grantor, and such Grantor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred under the Senior Credit
Agreement.

 

6.8 Deficiency. Each Grantor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay its Obligations and the fees and disbursements of any attorneys employed by
the Administrative Agent or any Lender to collect such deficiency.

 

SECTION 7. THE ADMINISTRATIVE AGENT

 

7.1 Administrative Agent’s Appointment as Attorney-in-Fact, etc. (a) Each
Grantor hereby irrevocably constitutes and appoints the Administrative Agent and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, each Grantor hereby gives the
Administrative Agent the power and right, on behalf of such Grantor, without
notice to or assent by such Grantor, to do any or all of the following:

 

(i) in the name of such Grantor or its own name, or otherwise, take possession
of and indorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due

 

16

--------------------------------------------------------------------------------

under any Receivable or with respect to any other Collateral and file any claim
or take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Administrative Agent for the purpose of
collecting any and all such moneys due under any Receivable or with respect to
any other Collateral whenever payable;

 

(ii) in the case of any Intellectual Property, execute and deliver, and have
recorded, any and all agreements, instruments, documents and papers as the
Administrative Agent may request to evidence the Administrative Agent’s and the
Lenders’ security interest in such Intellectual Property and the goodwill and
general intangibles of such Grantor relating thereto or represented thereby;

 

(iii) pay or discharge taxes and Liens levied or placed on or threatened against
the Collateral, effect any repairs or any insurance called for by the terms of
this Agreement and pay all or any part of the premiums therefor and the costs
thereof;

 

(iv) execute, in connection with any sale provided for in Section 6.6 or 6.7,
any indorsements, assignments or other instruments of conveyance or transfer
with respect to the Collateral; and

 

(v) (1) direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Administrative Agent or as the Administrative Agent shall direct; (2) ask or
demand for, collect, and receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (3) sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the Collateral; (4) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (6) settle, compromise or
adjust any such suit, action or proceeding and, in connection therewith, give
such discharges or releases as the Administrative Agent may deem appropriate;
(7) assign any Copyright, Patent or Trademark (along with the goodwill of the
business to which any such Copyright, Patent or Trademark pertains), throughout
the world for such term or terms, on such conditions, and in such manner, as the
Administrative Agent shall in its sole discretion determine; and (8) generally,
sell, transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the Administrative
Agent were the absolute owner thereof for all purposes, and do, at the
Administrative Agent’s option and such Grantor’s expense, at any time, or from
time to time, all acts and things which the Administrative Agent deems necessary
to protect, preserve or realize upon the Collateral and the Administrative
Agent’s and the Lenders’ security interests therein and to effect the intent of
this Agreement, all as fully and effectively as such Grantor might do.

 

Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this Section 7.1(a) unless an Event of Default shall
have occurred and be continuing.

 

(b) If any Grantor fails to perform or comply with any of its agreements
contained herein, the Administrative Agent, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.

 

(c) The expenses of the Administrative Agent incurred in connection with actions
undertaken as provided in this Section 7.1, together with interest thereon at a
rate per annum equal to the highest rate per annum at which interest would then
be payable on any category of past due ABR Loans under the

 

17

--------------------------------------------------------------------------------

Senior Credit Agreement, from the date of payment by the Administrative Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Administrative Agent on demand.

 

(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable
until this Agreement is terminated and the security interests created hereby are
released.

 

7.2 Duty of Administrative Agent. The Administrative Agent’s sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the New York UCC or otherwise, shall
be to deal with it in the same manner as the Administrative Agent deals with
similar property for its own account. Neither the Administrative Agent, any
Lender nor any of their respective officers, directors, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Grantor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on the Administrative Agent
and the Lenders hereunder are solely to protect the Administrative Agent’s and
the Lenders’ interests in the Collateral and shall not impose any duty upon the
Administrative Agent or any Lender to exercise any such powers. The
Administrative Agent and the Lenders shall be accountable only for amounts that
they actually receive as a result of the exercise of such powers, and neither
they nor any of their officers, directors, employees or agents shall be
responsible to any Grantor for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.

 

7.3 Execution of Financing Statements. Pursuant to any applicable law, each
Grantor authorizes the Administrative Agent to file or record financing
statements and other filing or recording documents or instruments with respect
to the Collateral without the signature of such Grantor in such form and in such
offices as the Administrative Agent determines appropriate to perfect the
security interests of the Administrative Agent under this Agreement. Each
Grantor authorizes the Administrative Agent to use the collateral description
“all personal property” in any such financing statements. Each Grantor hereby
ratifies and authorizes the filing by the Administrative Agent of any financing
statement with respect to the Collateral made prior to the date hereof.

 

7.4 Authority of Administrative Agent. Each Grantor acknowledges that the rights
and responsibilities of the Administrative Agent under this Agreement with
respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Senior 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 the Grantors, 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 Grantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.

 

18

--------------------------------------------------------------------------------

 

SECTION 8. MISCELLANEOUS

 

8.1 Amendments in Writing. None of the terms or provisions of this Agreement may
be waived, amended, supplemented or otherwise modified except in accordance with
Section 11.1 of the Senior Credit Agreement.

 

8.2 Notices. All notices, requests and demands to or upon the Administrative
Agent or any Grantor hereunder shall be effected in the manner provided for in
Section 11.2 of the Senior Credit Agreement; provided that any such notice,
request or demand to or upon any Guarantor shall be addressed to such Guarantor
at its notice address set forth on Schedule 1.

 

8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), 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. 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. 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.

 

8.4 [Intentionally Reserved]

 

8.5 Successors and Assigns. This Agreement shall be binding upon the successors
and assigns of each Grantor and shall inure to the benefit of the Administrative
Agent and the Lenders and their successors and assigns; provided that no Grantor
may assign, transfer or delegate any of its rights or obligations under this
Agreement without the prior written consent of the Administrative Agent.

 

8.6 Set-Off. Each Grantor hereby irrevocably authorizes the Administrative Agent
and each Lender at any time and from time to time while an Event of Default
shall have occurred and be continuing, without notice to such Grantor or any
other Grantor, any such notice being expressly waived by each Grantor, 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 the Administrative Agent or such Lender to or for the credit or the
account of such Grantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Grantor to the Administrative Agent or such
Lender hereunder and claims of every nature and description of the
Administrative Agent or such Lender against such Grantor, in any currency,
whether arising hereunder, under the Senior Credit Agreement, any other Loan
Document or otherwise, as the Administrative Agent or 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 Grantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender of the proceeds thereof, 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 8.6 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.

 

19

--------------------------------------------------------------------------------

 

8.7 Counterparts. This Agreement may be executed by one or more of the parties
to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.

 

8.8 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

8.9 Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

 

8.10 Integration. This Agreement and the other Loan Documents represent the
agreement of the Grantors, the Administrative Agent and the Lenders with respect
to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Loan Documents.

 

8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably and
unconditionally:

 

(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is a party,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof;

 

(b) consents that any such action or proceeding may be brought in such courts
and waives any objection that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead or claim the same;

 

(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Grantor at its
address referred to in Section 8.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;

 

(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and

 

(e) waives, to the maximum extent not prohibited by law, any right it may have
to claim or recover in any legal action or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.

 

8.13 Acknowledgements. Each Grantor hereby acknowledges that:

 

20

--------------------------------------------------------------------------------

 

(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents to which it is a party;

 

(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
the Grantors, on the one hand, and the Administrative Agent and Lenders, on the
other hand, in connection herewith or therewith is solely that of debtor and
creditor; and

 

(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among the Grantors and the Lenders.

 

8.14 Additional Grantors. Each Subsidiary of Holdings that is required to become
a party to this Agreement pursuant to Section 7.10 of the Senior Credit
Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.

 

8.15 Releases. (a) At such time as the Loans, the Reimbursement Obligations and
the other Obligations (other than Obligations in respect of Derivatives
Agreements) shall have been paid in full, the Commitments have been terminated
and no Letters of Credit shall be outstanding, the Collateral shall be released
from the Liens created hereby, and this Agreement and all obligations (other
than those expressly stated to survive such termination) of the Administrative
Agent and each Grantor hereunder shall terminate, all without delivery of any
instrument or performance of any act by any party, and all rights to the
Collateral shall revert to the Grantors. At the request and sole expense of any
Grantor following any such termination, the Administrative Agent shall deliver
to such Grantor any Collateral held by the Administrative Agent hereunder, and
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination.

 

(b) If any of the Collateral shall be sold, transferred or otherwise disposed of
by any Grantor in a transaction permitted by the Senior Credit Agreement, then
the Administrative Agent, at the request and sole expense of such Grantor, shall
execute and deliver to such Grantor all releases or other documents reasonably
necessary or desirable for the release of the Liens created hereby on such
Collateral. At the request and sole expense of HCC, a Subsidiary Guarantor shall
be released from its obligations hereunder in the event that all the Capital
Stock of such Subsidiary Guarantor shall be sold, transferred or otherwise
disposed of in a transaction permitted by the Senior Credit Agreement.

 

8.16 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

 

21

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and
Collateral Agreement to be duly executed and delivered as of the date first
above written.

 

HANOVER COMPRESSOR COMPANY

By:

 

/s/ Mark S. Berg

--------------------------------------------------------------------------------

   

Name: Mark S. Berg

Title: Senior Vice President

 

HANOVER COMPRESSION LIMITED PARTNERSHIP

By:

 

/s/ Mark S. Berg

--------------------------------------------------------------------------------

   

Name: Mark S. Berg

Title: Senior Vice President

--------------------------------------------------------------------------------

 

GULF COAST DISMANTLING, INC.

HANOVER ASIA, INC.

HANOVER AUSTRALIA, L.L.C.

HANOVER COMPRESSED NATURAL GAS SERVICES, LLC

HANOVER COMPRESSOR NIGERIA, INC.

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 (GATES), LLC

HANOVER POWER, LLC

HANOVER/TRINIDAD, L.L.C.

HC CAYMAN LLC

HC LEASING, INC.

HCC HOLDINGS, INC.

HCL COLOMBIA, INC.

KOG, INC.

SOUTHWEST INDUSTRIES, INC.

 

 

By:

 

/S/ MARK S. BERG

--------------------------------------------------------------------------------

   

Name: Mark S. Berg

Title: Senior Vice President

 

HANOVER SPE, LLC

By:

 

Hanover Compressor Company, the managing member

 

 

By:

 

/S/ MARK S. BERG

--------------------------------------------------------------------------------

   

Name: Mark S. Berg

Title: Senior Vice President