Document:

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                                                                   EXHIBIT 10.54

                                                                  EXECUTION COPY

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                                     LEASE

                                    between

                         HANOVER EQUIPMENT TRUST 2000B

                                  as Lessor,

                                      and

                           HANOVER COMPRESSION INC,

                                   as Lessee

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

                         Dated as of October 27, 2000

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

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

THIS LEASE IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE CHASE MANHATTAN
BANK, AS AGENT (THE "AGENT"), UNDER A CREDIT AGREEMENT, DATED AS OF OCTOBER 27,
2000 AMONG HANOVER EQUIPMENT TRUST 2000B, THE LENDERS, AND THE AGENT, AS AMENDED
OR SUPPLEMENTED. THIS LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. TO THE
EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS
DEFINED IN THE UNIFORM COMMERCIAL CODE OF THE STATES OF ALABAMA, LOUISIANA, NEW
MEXICO, OKLAHOMA, WYOMING OR TEXAS), NO SECURITY INTEREST IN THIS LEASE MAY BE
CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE AGENT ON
THE SIGNATURE PAGE HEREOF.
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                               TABLE OF CONTENTS

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                                                Section 1. DEFINITIONS

1.1      Defined Terms...........................................................................................    1

                                             Section 2. EQUIPMENT AND TERM

2.1      Equipment...............................................................................................    1
2.2      Lease Term..............................................................................................    1
2.3      Title...................................................................................................    1
2.4      Lease Supplements.......................................................................................    1

                                                    Section 3. RENT

3.1      Rent....................................................................................................    2
3.2      Supplemental Rent.......................................................................................    2
3.3      Performance on a Non-Business Day.......................................................................    2

                                                Section 4. WARRANTIES

4.1      Warranties..............................................................................................    2

                                              Section 5. QUIET ENJOYMENT

5.1      Quiet Enjoyment.........................................................................................    3

                                                 Section 6. NET LEASE

6.1      Net Lease; No Setoff; Etc...............................................................................    3
6.2      No Termination or Abatement.............................................................................    4

                                          Section 7. OWNERSHIP OF EQUIPMENT

7.1      Ownership of the Equipment..............................................................................    4

                                    Section 8. CONDITION AND LOCATION OF EQUIPMENT

8.1      Disclaimer of Warranties................................................................................    6
8.2      Possession and Use of the Equipment.....................................................................    7
8.3      Location of the Equipment...............................................................................    7

                                                Section 9. COMPLIANCE

9.1      Compliance with Legal Requirements and Insurance Requirements...........................................    7
9.2      Environmental Matters...................................................................................    7
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                               Section 10. MAINTENANCE, REPAIR AND RETURN REQUIREMENTS

10.1     Maintenance and Repair..................................................................................    8
10.2     Return Requirements.....................................................................................    9
10.3     Right of Inspection and Location........................................................................    9
10.4     Environmental Inspection................................................................................   10

                                               Section 11. MODIFICATIONS

11.1     Modifications...........................................................................................   10

                                                  Section 12. TITLE

12.1     Warranty of Title.......................................................................................   11
12.2     Identification..........................................................................................   11

                                            Section 13. PERMITTED CONTESTS

13.1     Permitted Contests Other Than in Respect of Impositions.................................................   11

                                                Section 14. INSURANCE

14.1     Public Liability and Workers' Compensation Insurance....................................................   12
14.2     Hazard and Other Insurance..............................................................................   12
14.3     Coverage................................................................................................   12

                                         Section 15. CONDEMNATION AND CASUALTY

15.1     Casualty and Condemnation...............................................................................   13

                                             Section 16. LEASE TERMINATION

16.1     Termination upon Certain Events.........................................................................   14
16.2     Procedures..............................................................................................   15

                                                  Section 17. DEFAULT

17.1     Lease Events of Default.................................................................................   15
17.2     Final Liquidated Damages................................................................................   16
17.3     Remedies................................................................................................   16
17.4     Additional Remedies.....................................................................................   17
17.5     Proceeds of Sale; Deficiency............................................................................   17
17.6     Waiver of Certain Rights................................................................................   17
17.7     Assignment of Rights Under Contracts....................................................................   17

                                          Section 18. LESSOR'S RIGHT TO CURE

18.1     Lessor's Right to Cure Lessee's Lease Defaults..........................................................   18
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                                            Section 19. LEASE TERMINATION

19.1     Provisions Relating to Lessee's Termination of this Lease or Exercise of Purchase Option................   18
19.2     Aggregate Tranche A Percentage..........................................................................   18

                                             Section 20. PURCHASE OPTION

20.1     Purchase Option.........................................................................................   19
20.2     Maturity Date Purchase Option...........................................................................   19
20.3     Obligation to Purchase All Equipment....................................................................   19

                                            Section 21. SALE OF EQUIPMENT

21.1     Sale Procedure..........................................................................................   19
21.2     Application of Proceeds of Sale.........................................................................   20
21.3     Indemnity for Excessive Wear............................................................................   20
21.4     Appraisal Procedure.....................................................................................   21
21.5     Certain Obligations Continue............................................................................   21

                                               Section 22. HOLDING OVER

22.1     Holding Over............................................................................................   21

                                               Section 23. RISK OF LOSS

23.1     Risk of Loss............................................................................................   22

                                        Section 24. SUBLETTING AND ASSIGNMENT

24.1     Subletting and Assignment...............................................................................   22
24.2     Subleases or Licenses...................................................................................   22

                                          Section 25. ESTOPPEL CERTIFICATES

25.1     Estoppel Certificates...................................................................................   23

                                                Section 26. NO WAIVER

26.1     No Waiver...............................................................................................   23

                                         Section 27. ACCEPTANCE OF SURRENDER

27.1     Acceptance of Surrender.................................................................................   23

                       Section 28. OWNERSHIP, GRANT OF SECURITY INTEREST AND FURTHER ASSURANCES

28.1     Grant of Security Interest..............................................................................   24
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28.2     UCC Remedies............................................................................................   24
28.3     Waiver; Deficiency......................................................................................   25
28.4     Agent's Appointment as Attorney-in-Fact; Agent's Performance of Lessee's Obligations....................   25

                                                 Section 29. NOTICES

29.1     Notices.................................................................................................   26

                                               Section 30. SUBSTITUTION

30.1     Substitution............................................................................................   27

                                              Section 31. MISCELLANEOUS

31.1     Miscellaneous...........................................................................................   28
31.2     Amendments and Modifications............................................................................   28
31.3     Successors and Assigns..................................................................................   28
31.4     Headings and Table of Contents..........................................................................   28
31.5     Counterparts............................................................................................   29
31.6     GOVERNING LAW...........................................................................................   29
31.7     Limitations on Recourse.................................................................................   29
31.8     Priority................................................................................................   29
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                                                                               1

          LEASE (this "Lease"), dated as of October 27, 2000, between HANOVER
                       -----
EQUIPMENT TRUST 2000B, a Delaware business trust, having its principal office at
c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, as lessor (the "Lessor"), and HANOVER COMPRESSION
                                            ------
INC., a Delaware corporation, having its principal office at 12001 North Houston
Rosslyn, Houston, Texas 77806, as lessee (the "Lessee").
                                               ------

          In consideration of the mutual agreements herein contained, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                            Section 1.  DEFINITIONS

          1.1  Defined Terms.  Capitalized terms used herein but not otherwise
               -------------
defined in this Lease shall have the respective meanings specified in Annex A to
the Participation Agreement dated as of the date hereof among Lessee, Lessor,
Agent, the Investor and the Lenders named therein, as such Participation
Agreement may be amended, supplemented or otherwise modified from time to time.

                        Section 2.  EQUIPMENT AND TERM

          2.1  Equipment.  Subject to the terms and conditions hereinafter set
               ---------
forth and contained in the respective Lease Supplement relating to each piece of
Equipment, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
each piece of Equipment.

          2.2  Lease Term. The Equipment is leased for the Term, unless extended
               ----------
or earlier terminated in accordance with the provisions of this Lease.

          2.3  Title.  Except as otherwise expressly set forth in the Operative
               -----
Agreements, the Equipment is leased to Lessee without any representation or
warranty, express or implied, by Lessor and subject to the rights of parties in
possession, the existing state of title (including, without limitation, the
Permitted Exceptions) and all applicable Legal Requirements.  Lessee shall in no
event have any recourse against Lessor for any defect in title to the Equipment
unless such defect was the result of an act or omission of Lessor or its
Affiliates.  Lessor and Lessee hereby declare that it is their mutual intent
that the Equipment is to be considered movable (personal) property, severable
from the improvements in which it may be located, and not immovables or
components of immovables, for all purposes of this Lease.

          2.4  Lease Supplements.  On each Equipment Closing Date, Lessee and
               -----------------
Lessor shall each execute and deliver a Lease Supplement for the Equipment to be
leased on such date in substantially the form of Exhibit A hereto and thereafter
                                                 ---------
such Equipment shall be subject to the terms of this Lease.
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                                                                               2

                               Section 3.  RENT

          3.1  Rent.  (a)  On each applicable Payment Date after the Equipment
               ----
Closing Date with respect to a piece of Equipment, Lessee shall pay the Basic
Rent attributable to such Equipment.

          (b)  Basic Rent shall be due and payable in Dollars and shall be paid
by wire transfer of immediately available funds on the due date therefor to such
account or accounts at such bank or banks or to such other Person or in such
other manner as Lessor shall from time to time direct.

          (c)  Lessee's inability or failure to take possession of all, or any
piece, of the Equipment when delivered by Lessor shall not delay or otherwise
affect Lessee's obligation to pay Rent in accordance with the terms of this
Lease.

          3.2  Supplemental Rent.  Lessee shall pay to Lessor or the Person
               -----------------
entitled thereto any and all Supplemental Rent promptly as the same shall become
due and payable, and if Lessee fails to pay any Supplemental Rent, Lessor shall
have all rights, powers and remedies provided for herein or by law or equity or
otherwise in the case of nonpayment of Basic Rent.  Lessee shall pay to Lessor
as Supplemental Rent, among other things, on demand, to the extent permitted by
applicable Legal Requirements, interest at the applicable Overdue Rate on any
installment of Basic Rent not paid when due for the period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due or
demanded by Lessor for the period from the due date or the date of any such
demand, as the case may be, until the same shall be paid.  The expiration or
other termination of Lessee's obligations to pay Basic Rent hereunder shall not
limit or modify the obligations of Lessee with respect to Supplemental Rent.
Unless expressly provided otherwise in this Lease or any other Operative
Agreement, in the event of any failure on the part of Lessee to pay and
discharge any Supplemental Rent as and when due, Lessee shall also promptly pay
and discharge any fine, penalty, interest or cost which may be assessed or added
for nonpayment or late payment of such Supplemental Rent, all of which shall
also constitute Supplemental Rent.

          3.3  Performance on a Non-Business Day.  If any payment is required
               ---------------------------------
hereunder on a day that is not a Business Day, then such payment shall be due on
the next succeeding Business Day, unless, in the case of payments based on the
Eurodollar Rate, the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day.

                            Section 4.  WARRANTIES

          4.1  Warranties.  Lessor agrees to take all such actions as may be
               ----------
reasonably necessary to insure that Lessee is the beneficiary of any and all
warranties with respect to the Equipment, provided, however, the reasonable
costs of any such actions shall be borne by Lessee.
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                          Section 5.  QUIET ENJOYMENT

          5.1  Quiet Enjoyment.  So long as no Lease Event of Default shall have
               ---------------
occurred and be continuing, Lessee shall peaceably and quietly have, hold and
enjoy the Equipment for the Term, free of any claim or other action by Lessor or
anyone claiming by, through or under Lessor.

                             Section 6.  NET LEASE

          6.1  Net Lease; No Setoff; Etc. This Lease shall constitute a net
               -------------------------
lease and, except as otherwise provided herein or in the other Operative
Agreements, it is intended that Basic Rent and Supplemental Rent shall be paid
without counterclaim, setoff, deduction or defense of any kind and without
abatement, suspension, deferment, diminution or reduction of any kind, and
Lessee's obligation to pay all such amounts is absolute and unconditional,
provided, that if at any time the Lessee is required to make a payment of (i)
Termination Value or (ii) an indemnity payment pursuant to Section 12 of the
Participation Agreement to the Investor, and there shall exist any Lessor Liens
attributable to the Investor (and the Lessee shall have previously incurred a
charge to discharge any Lessor Liens attributable to the Investor), then the
Lessee shall be entitled to deduct from the portion required to be paid to the
Investor of Termination Value or payment of indemnity, as the case may be, an
amount sufficient to so reimburse the Lessee for the cost of discharging such
Lessor Liens, as the case may be. The obligations and liabilities of Lessee
hereunder shall in no way be released, discharged or otherwise affected for any
reason, including, without limitation, to the maximum extent permitted by law:
(a) any defect in the condition, merchantability, design, quality or fitness for
use of any portion of any Equipment, or any failure of any Equipment to comply
with all Legal Requirements, including any inability to use any Equipment by
reason of such non-compliance; (b) any damage to, abandonment, loss,
contamination of or Release from or destruction of or any requisition or taking
of any Equipment or any part thereof; (c) any restriction, prevention or
curtailment of or interference with any use of any Equipment or any part
thereof; (d) any defect in title to or rights to any Equipment or any Lien on
such title or rights or on any Equipment; (e) any change, waiver, extension,
indulgence or other action or omission or breach in respect of any obligation or
liability of or by Lessor, Investor, Agent or any Lender; (f) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceedings relating to Lessee, Lessor, Investor, Agent, any Lender
or any other Person, or any action taken with respect to this Lease by any
trustee or receiver of Lessee, Lessor, Investor, Agent, any Lender or any other
Person, or by any court, in any such proceeding; (g) any claim that Lessee has
or might have against any Person, including, without limitation, Lessor,
Investor, Agent or any Lender; (h) any failure on the part of Lessor to perform
or comply with any of the terms of this Lease, any other Operative Agreement or
of any other agreement; (i) any invalidity or unenforceability or disaffirmance
against or by Lessee of this Lease or any provision hereof or any of the other
Operative Agreements or any provision of any thereof; (j) the impossibility of
performance by Lessee, Lessor or both; (k) any action by any court,
administrative agency or other Governmental Authority; any restriction,
prevention or curtailment of or any interference with the construction on or any
use of any Equipment or any part thereof; or (m) any other occurrence
whatsoever, whether similar or dissimilar to the foregoing, whether or not
Lessee shall have notice or
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                                                                               4

knowledge of any of the foregoing. This Lease shall be noncancellable by Lessee
for any reason whatsoever except as expressly provided herein or in the other
Operative Agreements, and Lessee, to the extent permitted by Legal Requirements,
waives all rights now or hereafter conferred by statute or otherwise to quit,
terminate or surrender this Lease, or to any diminution, abatement or reduction
of Rent payable by Lessee hereunder. If for any reason whatsoever this Lease
shall be terminated in whole or in part by operation of law or otherwise, except
as otherwise expressly provided herein or in the other Operative Agreements,
Lessee shall, unless prohibited by Legal Requirements, nonetheless pay to Lessor
(or, in the case of Supplemental Rent, to whomever shall be entitled thereto) an
amount equal to each Rent payment at the time and in the manner that such
payment would have become due and payable under the terms of this Lease if it
had not been terminated in whole or in part, and in such case, so long as such
payments are made and no Lease Event of Default shall have occurred and be
continuing, Lessor will deem this Lease to have remained in effect. Each payment
of Rent made by Lessee hereunder shall be final and, absent manifest error in
the computation of the amount thereof, Lessee shall not seek or have any right
to recover all or any part of such payment from Lessor, Investor, Agent or any
party to any agreements related thereto for any reason whatsoever. Lessee
assumes the sole responsibility for the condition, use, operation, maintenance,
and management of the Equipment and Lessor shall have no responsibility in
respect thereof and shall have no liability for damage to the property of Lessee
or any subtenant of Lessee on any account or for any reason whatsoever other
than resulting from Lessor's gross negligence or wilful misconduct.

          6.2  No Termination or Abatement.  Lessee shall remain obligated under
               ---------------------------
this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, or any action with respect to this Lease which may
be taken by any trustee, receiver or liquidator of Lessor or by any court with
respect to Lessor, except as otherwise expressly provided herein.  Lessee hereby
waives all right (i) to terminate or surrender this Lease, except as otherwise
expressly provided herein or in the other Operative Agreements, or (ii) to avail
itself of any abatement, suspension, deferment, reduction, setoff, counterclaim
or defense with respect to any Rent.  Lessee shall remain obligated under this
Lease in accordance with its terms and, to the extent permitted by law, Lessee
hereby waives any and all rights now or hereafter conferred by statute or
otherwise to modify or to avoid strict compliance with its obligations under
this Lease.  Notwithstanding any such statute or otherwise, to the extent
permitted by law, Lessee shall be bound by all of the terms and conditions
contained in this Lease.

                      Section 7.  OWNERSHIP OF EQUIPMENT

          7.1  Ownership of the Equipment. (a) Lessor and Lessee intend that (i)
               --------------------------
for financial accounting purposes with respect to Lessee (A) this Lease will be
treated as an "operating lease" pursuant to Statement of Financial Accounting
Standards (SFAS) No. 13, as amended, (B) Lessor will be treated as the owner and
lessor of the Equipment and (C) Lessee will be treated as the lessee of the
Equipment, but (ii) for federal, state and local income tax and state law
purposes (A) this Lease will be treated as a financing arrangement, (B) the
Lenders will
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                                                                               5

be treated as senior lenders making loans to Lessee in an amount equal to the
Loans, which Loans will be secured by the Equipment, (C) Lessor will be treated
as a subordinated lender making a loan to Lessee in an amount equal to the
Investor Contribution, which loan is secured by the Equipment, and (D) Lessee
will be treated as the owner of the Equipment and will be entitled to all tax
benefits ordinarily available to an owner of property like the Equipment for
such tax purposes.

          (b)  Lessor and Lessee further intend and agree that, for the purpose
of securing Lessee's obligations for the repayment of the above-described loans,
(i) this Lease shall also be a security agreement (as defined in Section 1-
201(37) of the Uniform Commercial Code) and financing statement within the
meaning of Article 9 of the Uniform Commercial Code; (ii) the conveyance
provided for in Section 2 shall be deemed a grant of a security interest in
Lessee's right, title and interest in the Equipment (including the right to
exercise all remedies as are contained herein upon the occurrence of a Lease
Event of Default) and all proceeds of the conversion, voluntary or involuntary,
of the foregoing into cash, investments, securities or other property, whether
in the form of cash, investments, securities or other property, for the benefit
of the Lessor to secure the Lessee's payment of all amounts owed by the Lessee
under this Lease and the other Operative Agreements and Lessor holds title to
the Equipment so as to create and grant a first lien and prior security interest
in the Equipment (A) pursuant to this Lease for the benefit of the Agent under
the Assignment of Lease, to secure to the Agent the obligations of the Lessee
under the Lease and (B) pursuant to the Security Agreement to secure to the
Agent the obligations of the Lessor under the Credit Agreement and the Notes;
(iii) the possession by Lessor or any of its agents of notes and such other
items of property as constitute instruments, money, negotiable documents or
chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
Uniform Commercial Code; and (iv) notifications to Persons holding such
property, and acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of Lessee shall be deemed to
have been given for the purpose of perfecting such security interest under
applicable law. Lessor and Lessee shall take such actions as may be necessary to
ensure that such security interest is a perfected security interest of first
priority under applicable law and will be maintained as such throughout the
Term. Nevertheless, Lessee acknowledges and agrees that none of Lessor,
Investor, the Trust Company, Agent, or any Lender has provided or will provide
tax, accounting or legal advice to Lessee regarding this Lease, the Operative
Agreements or the transactions contemplated hereby and thereby, or made any
representations or warranties concerning the tax, accounting or legal
characteristics of the Operative Agreements, and that Lessee has obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Agreements as it deems appropriate.

          (c)  Lessor and Lessee further intend and agree that in the event of
any insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting Lessee or
Lessor, the transactions evidenced by this Lease shall be regarded as loans made
by an unrelated third party lender to Lessee.
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                                                                               6

                Section 8.  CONDITION AND LOCATION OF EQUIPMENT

          8.1  Disclaimer of Warranties.  WITHOUT LIMITING ANY CLAIM LESSEE MAY
               ------------------------
HAVE AGAINST ANY CONTRACTOR, SUBCONTRACTOR, SUPPLIER OR MANUFACTURER, LESSEE
EXPRESSLY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE
FROM THE LESSOR, THE AGENT OR THE INVESTOR OR THEIR RESPECTIVE AGENTS OR
EMPLOYEES, AND LESSEE AGREES THAT (I) EACH PIECE OF EQUIPMENT IS OF A SIZE,
DESIGN, AND CAPACITY SELECTED BY AND ACCEPTABLE TO LESSEE, (II) LESSEE IS
SATISFIED THAT EACH ITEM OF EQUIPMENT IS SUITABLE FOR ITS PURPOSES, (III) THE
EQUIPMENT IS LEASED HEREUNDER SUBJECT TO ALL APPLICABLE LAWS AND GOVERNMENTAL
REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED, (IV) IT IS LEASING THE EQUIPMENT
FROM LESSOR IN AN "AS IS", "WHERE IS" AND "WITH ALL FAULTS" CONDITION AND (V)
NEITHER LESSOR NOR THE INVESTOR IS A MANUFACTURER OR DEALER IN EQUIPMENT OF SUCH
KIND.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THE OPERATIVE AGREEMENTS,
NEITHER LESSOR NOR THE INVESTOR SHALL BE DEEMED TO HAVE MADE, AND LESSEE HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED,
AS TO THE EQUIPMENT, ANY PART THEREOF, OR ANY RECORDS OR ANY OTHER MATTER
WHATSOEVER WITH RESPECT THERETO, INCLUDING, WITHOUT LIMITATION, THE DESIGN,
CONDITION OR CAPACITY OF THE EQUIPMENT, THEIR MERCHANTABILITY OR THEIR FITNESS
FOR ANY PARTICULAR PURPOSE, THE QUALITY OF THE MATERIALS OR WORKMANSHIP OF THE
EQUIPMENT, THEIR VALUE, TITLE OR SAFETY, THE ABSENCE OF ANY PATENT, TRADEMARK OR
COPYRIGHT INFRINGEMENT OR LATENT DEFECT (WHETHER OR NOT DISCOVERABLE BY LESSEE),
COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY APPLICABLE LAWS
(INCLUDING ENVIRONMENTAL LAWS) PERTAINING THERETO, OR THE CONFORMITY OF THE
EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY CONSTRUCTION OR PURCHASE
DOCUMENT RELATING THERETO OR ANY COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE, NOR SHALL LESSOR NOR THE INVESTOR BE LIABLE TO LESSEE, FOR ANY
DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN THE
EQUIPMENT OR ANY PART THEREOF OR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR
PROPERTY RESULTING THEREFROM OR FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE LIABILITY IN TORT.  WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LESSEE HEREBY WAIVES, ANY CLAIM
(INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR
INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR, OR THE INVESTOR FOR ANY LOSS, DAMAGE
(INCLUDING, WITHOUT LIMITATION, DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT OR BY LESSEE'S LOSS OF
USE THEREOF FOR ANY REASON WHATSOEVER OTHER THAN WITH RESPECT TO THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF LESSOR OR INVESTOR.  LESSEE AND ANYONE
CLAIMING BY, THROUGH OR UNDER LESSEE HEREBY FULLY AND IRREVOCABLY RELEASES
LESSOR, THE INVESTOR AND EACH OTHER PERSON PARTY TO THE OPERATIVE AGREEMENTS,
<PAGE>

                                                                               7

AND EACH OF THEIR EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES, AGENTS,
SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES, SUBSIDIARIES, SUCCESSORS AND
ASSIGNS, AND ALL PERSONS ACTING ON THEIR BEHALF, FROM ANY AND ALL CLAIMS THAT IT
MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST THE INVESTOR, LESSOR OR ANY OTHER SUCH
PERSON, FOR ANY COSTS, LOSS, LIABILITY, DAMAGE, EXPENSES, DEMAND, ACTION OR
CAUSE OF ACTION ARISING FROM OR RELATED TO THE RELEASE OR DISCHARGE FROM THE
EQUIPMENT AT ANY TIME OF ANY HAZARDOUS MATERIALS OTHER THAN A RELEASE OR
DISCHARGE OCCURRING AFTER LESSEE IS NO LONGER IN POSSESSION OF THE EQUIPMENT AND
RESULTING SOLELY FROM ACTS OR OMISSIONS OF LESSOR, THE INVESTOR OR ANY OTHER
SUCH PERSON. THIS RELEASE INCLUDES CLAIMS OF WHICH LESSEE IS PRESENTLY UNAWARE
OR WHICH LESSEE DOES NOT PRESENTLY SUSPECT TO EXIST WHICH, IF KNOWN BY LESSEE,
WOULD MATERIALLY AFFECT LESSEE'S RELEASE OF LESSOR AND THE OTHER PERSONS
RELEASED HEREBY.

          8.2  Possession and Use of the Equipment. Each piece of Equipment
               -----------------------------------
shall be used by Lessee in a manner consistent with its intended purpose and in
accordance with its specification. Subject to the terms of Section 13 relating
to permitted contests, Lessee shall pay, or cause to be paid, all charges and
costs required in connection with the use of the Equipment. Lessee shall not
commit or permit any waste of any Equipment or any part thereof.

          8.3  Location of the Equipment.  Lessee shall at all times keep, and
               -------------------------
cause to be kept, each piece of Equipment within the United States or on lands
covered by leases under the exclusive jurisdiction of the United States of
America pursuant to the Outer Continental Shelf Lands Act, as amended, 43 U.S.C.
? ? 1331, et seq. (1986).

                            Section 9.  COMPLIANCE

          9.1  Compliance with Legal Requirements and Insurance Requirements.
               -------------------------------------------------------------
Subject to the terms of Section 13 relating to permitted contests, Lessee, at
its sole cost and expense, shall, in all material respects, (a) comply with all
Legal Requirements (including all Environmental Laws) and Insurance Requirements
relating to each piece of Equipment, including the use, construction, operation,
maintenance, repair and restoration thereof, whether or not compliance therewith
shall require extraordinary changes in the Equipment or interfere with the use
and enjoyment of the Equipment, and (b) procure, maintain and comply with all
licenses, permits, orders, approvals, consents and other authorizations required
for the construction, renovation, use, repair, maintenance and operation of each
piece of Equipment.

          9.2  Environmental Matters. (a) Promptly upon Lessee's actual
               ---------------------
knowledge of the presence of Hazardous Substances with respect to any piece of
Equipment in concentrations and conditions that constitute an Environmental
Violation, Lessee shall notify Lessor in writing of such condition. In the event
of such Environmental Violation, Lessee shall, not later than thirty (30) days
after Lessee has actual knowledge of such Environmental Violation, either
deliver to Lessor and the Agent an Officer's Certificate and a Termination
Notice with respect to such
<PAGE>

                                                                               8

piece of Equipment pursuant to Section 16.1, if applicable, or, at Lessee's sole
cost and expense, promptly and diligently undertake any response, clean up,
remedial or other action necessary to remove, cleanup or remediate the
Environmental Violation in accordance with the terms of Section 9.1. If Lessee
does not deliver a Termination Notice with respect to such Equipment pursuant to
Section 16.1, Lessee shall, upon completion of remedial action by Lessee, so
inform Lessor in writing and upon Lessor's written request therefor cause to be
prepared by an environmental consultant reasonably acceptable to Lessor a report
describing the Environmental Violation and the actions taken by Lessee (or its
agents) in response to such Environmental Violation, and a statement by the
consultant that such Environmental Violation has been remedied in full
compliance with applicable Environmental Laws. The foregoing provisions of this
Section 9.2(a) notwithstanding, Lessee shall not be required to deliver a
Termination Notice if such Environmental Violation would not reasonably be
expected to have a material adverse affect on the Equipment.

          (b)  In addition, Lessee shall provide to Lessor, within five (5)
Business Days of receipt, copies of all significant written communications with
any Governmental Authority relating to any Environmental Claim in connection
with any piece of Equipment. Lessee shall also promptly provide such detailed
reports of any such Environmental Claims as reasonably may be requested by
Lessor and the Agent.

           Section 10.  MAINTENANCE, REPAIR AND RETURN REQUIREMENTS

          10.1 Maintenance and Repair.  (a)  Lessee shall, at its sole cost and
               ----------------------
expense, (i) take good care of the Equipment and keep the same and all parts
thereof in good and safe order and condition, with all mechanical devices,
electronic systems and component parts in good working order, normal wear and
tear excepted, consistent with maintenance practices used by Lessee with respect
to equipment similar in type owned or leased by Lessee and consistent with
customary industry standards, and (ii) promptly make all needed repairs,
restorations and replacements of parts in and to the Equipment or any part
thereof, including, without limitation, overhaul of any piece of Equipment
requiring overhaul in Lessee's commercially prudent judgment.  All such repairs,
restorations and replacements of parts shall be of a standard and quality
consistent with customary industry standards and sufficient for the proper
maintenance and operation of the Equipment and shall be constructed and
installed in a good and workmanlike manner in compliance with Legal Requirements
and Insurance Requirements.  In carrying out its obligations under this Section
10.1, Lessee shall not discriminate in any way in the maintenance of the
Equipment as compared with other similar equipment owned or leased by Lessee and
shall use the Equipment in a manner consistent with sound operating practices
thereof.

          (b)  Lessor shall under no circumstances be required to furnish any
services or facilities with respect to the Equipment or make any repairs,
replacements, alterations or renewals of any nature or description to any
Equipment, make any expenditure whatsoever in connection with this Lease or
maintain any Equipment in any way except as otherwise provided in the Operative
Agreements. Lessor shall not be required to maintain, repair or rebuild all or
any part of any Equipment, and Lessee waives the right to (i) require Lessor to
maintain, repair,
<PAGE>

                                                                               9

or rebuild all or any part of any Equipment, or (ii) make repairs at the expense
of Lessor pursuant to any Legal Requirement, Insurance Requirement, contract,
agreement, covenants, condition or restriction at any time in effect.

          10.2 Return Requirements.  (a) Unless Lessee shall have exercised its
               -------------------
Purchase Option or Maturity Date Purchase Option, Lessee shall, upon the
expiration or earlier termination of the Term with respect to each piece of
Equipment, surrender and transfer such Equipment to Lessor, at Lessee's own
expense, free and clear of all Liens other than (A) the following items set
forth under the definition of Permitted Liens: (i), (ii), (vii) and (viii) and
(B) Lessor Liens, in as good condition as they were on the Equipment Closing
Date with respect to each piece of Equipment, ordinary wear and tear excepted,
and in compliance with all Legal Requirements and the other requirements of this
Lease, including, without limitation, Section 10.1 (and in any event without (x)
any asbestos installed or maintained in any part of such Equipment, (y) any
polychlorinated byphenyls (PCBs) in, on or used with respect to such Equipment,
and (z) any other Hazardous Substances).  Unless Lessee has exercised the
Purchase Option or the Maturity Date Purchase Option, Lessee shall provide, or
cause to be provided or accomplished, at the sole cost and expense of Lessee, to
or for the benefit of Lessor or a purchaser, at least thirty Business Days prior
to the expiration or earlier termination of the Term with respect to each piece
of Equipment, each of the following:  (i) a Lien search showing (A) no Liens
other than the type set forth as clauses (A) and (B) in the first sentence of
this Section 10.2(a) and (B) the Security Agreement as creating a valid and
perfected first security interest in the Equipment; (ii) an environmental
assessment for the Equipment satisfying the requirements set forth in Section
10.4 below; (iii) an assignment of all of the Lessee's right, title and interest
in and to each agreement executed by Lessee in connection with the renovation,
development, use, maintenance or operation of the Equipment (including all
warranty, performance, service and indemnity provisions); (iv) an assignment of
all permits, licenses, approvals and other authorizations from all Governmental
Authorities in connection with the operation and use of the Equipment; and (v)
copies of all books and records, with respect to the renovation, maintenance,
repair, operation or use of the Equipment.  Lessee shall cooperate with any
independent purchaser of the Equipment in order to facilitate the ownership and
operation by such purchaser of the Equipment after such expiration or earlier
termination of the Term, including providing all books, reports and records
regarding the maintenance, repair and ownership of the Equipment and all data
and technical information relating thereto, granting or assigning all licenses
necessary for the operation and maintenance of the Equipment and cooperating in
seeking and obtaining all necessary licenses, permits and approvals of
Governmental Authorities.  Lessee shall have also paid the total cost for the
completion of all Modifications commenced prior to such expiration or earlier
termination of the Term.  The obligation of Lessee under this Section 10.2(a)
shall survive the expiration or termination of this Lease.

          (b)  Lessee, on the expiration or earlier termination of the Term, if
requested by Lessor, shall, at Lessee's sole cost and expense dismantle and
crate each piece of Equipment that Lessor shall designate and, at Lessee's sole
cost and expense transport such Equipment to a location designated by Lessor.

          10.3 Right of Inspection and Location.  (a) Lessor may, at reasonable
               --------------------------------
times and with reasonable prior notice and without interfering with the
operations of Lessee's customers, inspect and examine at its own cost and
expense (unless a Lease Event of Default exists, in
<PAGE>

                                                                              10

which case the reasonable out-of-pocket costs and expenses of Lessor shall be
paid by Lessee), any piece of Equipment. Lessee may accompany Lessor on any such
inspections.

          (b)  Lessee shall furnish to Lessor not less than once every six
months during the Term, an Officer's Certificate, accurate in all material
respects, stating the location of each piece of Equipment, noting whether any
Equipment has been relocated and if so the correct address of the relocated
Equipment. Lessor shall have no duty to make any such inspection or inquiry and
shall not incur any liability or obligation by reason of not making any such
inspection or inquiry.

          10.4 Environmental Inspection.  Not less than six months prior to the
               ------------------------
Maturity Date (unless Lessee has previously irrevocably exercised the Maturity
Date Purchase Option), and not more than thirty Business Days prior to surrender
of possession of a piece of Equipment, Lessor shall, at Lessee's sole cost and
expense, obtain a report by an environmental consultant selected by Lessor
certifying that each piece of Equipment (i) does not contain Hazardous
Substances under circumstances or in concentrations that would reasonably be
expected to result in a violation of or liability under any Environmental Law
and (ii) is in compliance with all Environmental Laws.  If such is not the case
on either such date, then Lessee shall be deemed to have irrevocably exercised
the Maturity Date Purchase Option pursuant to Section 20.2.

                          Section 11.  MODIFICATIONS

          11.1 Modifications. (a) Lessee, at its sole cost and expense, may at
               -------------
any time and from time to time make alterations, renovations, improvements and
additions to a piece of Equipment or any part thereof (collectively,
"Modifications"); provided, that: (i) except for any Modification required to be
made pursuant to a Legal Requirement or an Insurance Requirement, no
Modification, individually, or when aggregated with any other Modification shall
impair the value of such Equipment or the utility or useful life of such
Equipment from that which existed immediately prior to such Modification; (ii)
the Modification shall be performed in a timely manner and in a good and
workmanlike manner; (iii) Lessee shall comply with all Legal Requirements
(including all Environmental Laws) and Insurance Requirements applicable to the
Modification, including the obtaining of all permits, and the structural
integrity of such Equipment shall not be adversely affected; (iv) subject to the
terms of Section 13 relating to permitted contests, Lessee shall pay all costs
and expenses and discharge any Liens arising with respect to the Modification;
and (v) such Modifications shall comply with Section 10.1 and shall not change
the primary character of such Equipment or intended use of such Equipment. All
Modifications shall remain part of the Equipment and shall be subject to this
Lease, and title thereto shall immediately vest in Lessor.

          (b)  Lessee shall notify Lessor of the undertaking of any
Modifications the cost of which is anticipated to exceed $500,000.

          (c)  Lessee shall not without the consent of Lessor (which consent
will not be unreasonably withheld or delayed) undertake any Modifications to any
piece of Equipment if such Modifications cannot, in the reasonable judgement of
Lessee, be completed on or prior to the date that is one month prior to the
Expiration Date.
<PAGE>

                                                                              11

          (d)  Lessee, at its sole cost and expense, shall overhaul
substantially all of the Equipment during the Term, consistent with Lessee's
normal business practices.

                              Section 12.  TITLE

          12.1 Warranty of Title.  (a)  Lessee agrees that, except as otherwise
               -----------------
provided herein (i.e. with respect to Lessor Liens) and subject to the terms of
Section 13 relating to permitted contests, Lessee shall not directly or
indirectly create or allow to remain, and shall promptly discharge at its sole
cost and expense, any Lien, defect, attachment, levy, title retention agreement
or claim upon any piece of Equipment or any Modifications or any Lien,
attachment, levy or claim with respect to the Rent or with respect to any
amounts held by the Agent pursuant to the Credit Agreement, other than Permitted
Liens and/or Lessor Liens.  Lessee shall promptly notify Lessor in the event it
has actual knowledge that a Lien (other than a Permitted Lien and/or a Lessor
Lien) exists with respect to the Equipment.

          (b)  Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied, to or for
the performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
alteration, addition, repair or demolition of or to any piece of Equipment or
any part thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
LESSEE, OR TO ANYONE HOLDING ANY EQUIPMENT OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY
EQUIPMENT.

          12.2 Identification. Lessee shall not allow the name of any Person to
be placed upon any portion of any piece of Equipment as a designation that might
be interpreted as indicating a claim of ownership thereof or security interest
therein by any Person other than Lessee.

                       Section 13.  PERMITTED CONTESTS

          13.1 Permitted Contests Other Than in Respect of Impositions. Except
               -------------------------------------------------------
to the extent otherwise provided for in Section 12.2(g) of the Participation
Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole cost
and expense, may contest, by appropriate administrative or judicial proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Legal Requirement, or any Lien,
attachment, levy, encumbrance or encroachment, and Lessor agrees not to pay,
settle or otherwise compromise any such item, provided that (a) the commencement
and continuation of such proceedings shall suspend the collection from, and
suspend the enforcement against the applicable Equipment, Lessor, the Agent, the
Investor and the Lenders; (b) there shall be no risk of the imposition of a Lien
(other than a Permitted Lien) on any piece of Equipment and no part of any piece
of Equipment nor any Rent would be in any danger of being sold, forfeited, lost
or
<PAGE>

                                                                              12

deferred; (c) at no time during the permitted contest shall there be a risk
of the imposition of criminal liability or civil liability on Lessor, the Agent
or any Lender for failure to comply therewith; and (d) in the event that, at any
time, there shall be a material risk of extending the application of such item
beyond the earlier of the Maturity Date and the Expiration Date for the
applicable Equipment, then Lessee shall deliver to Lessor an Officer's
Certificate certifying as to the matters set forth in clauses (a), (b) and (c)
of this Section 13.1.  Lessor, at Lessee's sole cost and expense, shall execute
and deliver to Lessee such authorizations and other documents as may reasonably
be required in connection with any such contest and, if reasonably requested by
Lessee, shall join as a party therein at Lessee's sole cost and expense.

                            Section 14.  INSURANCE

          14.1 Public Liability and Workers' Compensation Insurance. During the
               ----------------------------------------------------
Term, Lessee shall procure and carry, at Lessee's sole cost and expense,
commercial general liability insurance for claims for injuries or death
sustained by persons or damage with respect to the use or operation of the
Equipment. Such insurance shall be on terms and in amounts that are no less
favorable than insurance maintained by owners of similar equipment which are in
Lessee's line of business, that are in accordance with normal industry practice.
The policy shall be endorsed to name Lessor, the Trust Company, the Investors,
the Agent and the Lenders as additional insureds. The policy shall also
specifically provide that the policy shall be considered primary insurance which
shall apply to any loss or claim before any contribution by any insurance which
Lessor, the Trust Company, the Agent or the Lenders may have in force. Lessee
shall, in the operation of the Equipment, comply with the applicable workers'
compensation laws and protect Lessor against any liability under such laws.

          14.2 Hazard and Other Insurance. During the Term, Lessee shall keep
               --------------------------
each piece of Equipment insured against loss or damage by fire and other risks
on terms and in amounts that are no less favorable than insurance maintained by
owners of similar equipment, that are in accordance with normal industry
practice, are in amounts equal to the greater of (i) Termination Value and (ii)
the actual replacement cost of the Equipment. So long as no Lease Event of
Default exists, any loss payable under the insurance policy required by this
Section will be paid to and adjusted solely by Lessee, subject to Section 15.

          14.3 Coverage.  (a)  Lessee shall furnish Lessor with certificates
               --------
showing the insurance required under Sections 14.1 and 14.2 to be in effect and
naming Agent, the Lenders, the Lessor, the Investors and the Trust Company as an
additional insured with respect to liability insurance and showing the
endorsement required by Section 14.3(c).  All such insurance shall be at the
cost and expense of Lessee.  Such certificates shall include a provision in
which the insurer agrees to provide thirty (30) days' advance written notice by
the insurer to Lessor and the Agent in the event of cancellation or modification
of such insurance that would reasonably be expected to be adverse to the
interests of Lessor, the Trust Company or the Agent.  If a Lease Event of
Default has occurred and is continuing and Lessor so requests, Lessee shall
deliver to Lessor copies of all insurance policies required by this Lease.
<PAGE>

                                                                              13

          (b)  Lessee agrees that the insurance policy or policies required by
this Lease shall include an appropriate clause pursuant to which such policy
shall provide that it will not be invalidated should Lessee waive, in writing,
prior to a loss, any or all rights of recovery against any party for losses
covered by such policy. Lessee hereby waives any and all such rights against
Lessor, the Trust Company, the Investor, the Agent and the Lenders to the extent
of payments made under such policies.

          (c)  All insurance policies required by Section 14.2 shall include a
loss payee endorsement in favor of the Agent.

          (d)  Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Lessor may carry separate
liability insurance so long as (i) Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance Lessor may have in force
which would apply to a loss covered under Lessee's policy and (ii) each such
insurance policy will not cause Lessee's insurance required under this Lease to
be subject to a coinsurance exception of any kind.

          (e)  Lessee shall pay as they become due all premiums for the
insurance required by this Lease, shall renew or replace each policy prior to
the expiration date thereof and shall promptly deliver to Lessor and the Agent
certificates for renewal and replacement policies.

                    Section 15.  CONDEMNATION AND CASUALTY

          15.1 Casualty and Condemnation.  (a) Subject to the provisions of this
               -------------------------
Section 15 and Section 16 (in the event Lessee delivers, or is obligated to
deliver, a Termination Notice), and prior to the occurrence and continuation of
a Lease Event of Default, Lessee shall be entitled to receive (and Lessor hereby
irrevocably assigns to Lessee all of Lessor's right, title and interest in) any
award, compensation or insurance proceeds to which Lessee or Lessor may become
entitled by reason of their respective interests in the Equipment (i) if all or
a portion of such Equipment is damaged or destroyed in whole or in part by a
Casualty or (ii) if the use, access, easement rights or title to such Equipment
or any part thereof is the subject of a Condemnation; provided, however, if a
                                                      --------  -------
Lease Event of Default shall have occurred and be continuing such award,
compensation or insurance proceeds shall be paid directly to Lessor or, if
received by Lessee, shall be held in trust for Lessor, and shall be paid over by
Lessee to Lessor.

          (b)  So long as no Lease Event of Default has occurred and is
continuing, Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or insurance
payment on account of any such Casualty or Condemnation and shall pay all
expenses thereof. At Lessee's reasonable request, and at Lessee's sole cost and
expense, Lessor and the Agent shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. Lessor and Lessee agree that this Lease
shall control the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
<PAGE>

                                                                              14

          (c)  If Lessor or Lessee shall receive notice of a Casualty or a
possible Condemnation of a piece of Equipment or any interest therein, Lessor or
Lessee, as the case may be, shall give notice thereof to the other and to the
Agent promptly after the receipt of such notice.

          (d)  In the event of a Casualty or receipt of notice by Lessee or
Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after
such occurrence, deliver to Lessor and the Agent an Officer's Certificate
stating that either (i) (x) such Casualty is not a Significant Casualty or (y)
such Condemnation is neither a Total Condemnation nor a Significant Condemnation
and that this Lease shall remain in full force and effect with respect to the
applicable piece of Equipment and, at Lessee's sole cost and expense, Lessee
shall promptly and diligently restore the applicable piece of Equipment in
accordance with the terms of Section 15.1(e) or (ii) this Lease shall terminate
with respect to the applicable Equipment in accordance with Section 16.1.

          (e)  If pursuant to this Section 15.1, this Lease shall continue in
full force and effect following a Casualty or Condemnation with respect to the
affected piece of Equipment, Lessee shall, at its sole cost and expense,
promptly and diligently repair any damage to the applicable piece of Equipment
caused by such Casualty or Condemnation in conformity with the requirements of
Sections 10.1 and 11.1 so as to restore the applicable piece of Equipment to the
same condition, operation, function and value as existed immediately prior to
such Casualty or Condemnation. In such event, title to the applicable piece of
Equipment shall remain with Lessor.

          (f)  In no event shall a Casualty or Condemnation with respect to
which this Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1.

          (g)  Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with respect to
a piece of Equipment or Lessee receives notice of a Condemnation with respect to
a piece of Equipment, and following such Casualty or Condemnation, such piece of
Equipment cannot reasonably be restored on or before the date which is six
months prior to the Maturity Date to substantially the same condition as existed
immediately prior to such Casualty or Condemnation or before such day such piece
of Equipment is not in fact so restored, then Lessee shall exercise its Purchase
Option with respect to such piece of Equipment, on the next Payment Date or
irrevocably agree in writing to exercise the Maturity Date Purchase Option with
respect to such piece of Equipment and in either such event such remaining
Casualty or Condemnation proceeds shall be paid to the Agent, which shall pay
such funds to Lessee upon the closing of the purchase of such piece of
Equipment.

                        Section 16.  LEASE TERMINATION

          16.1 Termination upon Certain Events. (a) If Lessor or Lessee shall
               -------------------------------
have received notice of a Total Condemnation, then Lessee shall be obligated,
within thirty (30) days after Lessee receives notice thereof, to deliver a
written notice in the form described in Section
<PAGE>

                                                                              15

16.2(a) (a "Termination Notice") of the termination of this Lease with respect
            ------------------
to the applicable piece of Equipment.

          (b)  If either:  (i) Lessee or Lessor shall have received notice of a
Condemnation, and Lessee shall have delivered to Lessor an Officer's Certificate
that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs,
and Lessee shall have delivered to Lessor an Officer's Certificate that such
Casualty is a Significant Casualty; or (iii) an Environmental Violation occurs
or is discovered and Lessee shall have delivered to Lessor an Officer's
Certificate stating that, in the reasonable, good-faith judgment of Lessee, the
cost to remediate the same will exceed 10% of the Equipment Cost of such piece
of Equipment; then, Lessee shall, simultaneously with the delivery of the
Officer's Certificate pursuant to the preceding clause (i), (ii) or (iii),
deliver a Termination Notice with respect to the affected piece of Equipment.

          16.2 Procedures. (a) A Termination Notice shall contain: (i) notice of
               ----------
termination of this Lease with respect to the affected piece of Equipment on a
date not more than thirty (30) days after Lessor's receipt of such Termination
Notice (the "Termination Date"); (ii) a binding and irrevocable agreement of
             ----------------
Lessee to pay the Termination Value and purchase such piece of Equipment or
substitute such piece of Equipment in accordance with Section 30 on such
Termination Date and (iii) the Officer's Certificate described in Section
16.1(b).

          (b)  On the Termination Date, Lessee shall (i) pay to Lessor the
Termination Value for the applicable piece of Equipment, plus all amounts owing
in respect of Rent for such piece of Equipment (including Supplemental Rent)
theretofore accruing and Lessor shall convey such piece of Equipment to Lessee
(or Lessee's designee) all in accordance with Section 19.1 or (ii) substitute
such piece of Equipment in accordance with Section 30.

                             Section 17.  DEFAULT

          17.1 Lease Events of Default. If any one or more of the following
               -----------------------
events (each a "Lease Event of Default") shall occur:
                ----------------------

          (a)  Lessee shall fail to make payment of (i) any Basic Rent within
five (5) Business Days after the same has become due and payable or (ii) any
Maximum Residual Guarantee Amount, Purchase Option Price or Termination Value
after the same has become due and payable; or

          (b)  Lessee shall fail to make payment of any Supplemental Rent due
and payable within five (5) Business Days after receipt of notice thereof; or

          (c)  Lessee shall fail to maintain insurance as required by Section
14; or

          (d)  Guarantors shall default in the observance or performance of any
agreement contained in Sections 10 and 11 of the Guarantee; or

          (e)  Lessee or any Guarantor shall default in the observance or
performance of any term, covenant or condition of Lessee or of such Guarantor,
respectively, under this Lease, the
<PAGE>

                                                                              16

Participation Agreement, the Guarantee or any other Operative Agreement to which
it is a party (other than those set forth in Section 17.1(a), (b), (c) or (d)
hereof) and such default shall continue unremedied for a period of 30 days or
any representation or warranty by Lessee or any Guarantor, respectively, set
forth in this Lease, the Guarantee or in any other Operative Agreement or in any
document entered into in connection herewith or therewith or in any document,
certificate or financial or other statement delivered in connection herewith or
therewith shall be false or inaccurate in any material respect; or

          (f)  a Credit Agreement Event of Default (other than (1) those set
forth in Sections 6.1 (a), (b), (d), (f), (g) and (i) of the Credit Agreement
and (2) those set forth in Sections 6.1(h) and (p) of the Credit Agreement which
do not arise, whether in whole or in material part, from any action or failure
to act by the Lessee) shall have occurred and be continuing; or

          (g)  an event of default under the Corporate Credit Agreement or any
Equipment Lease (other than this Lease) shall have occurred and be continuing;

then, in any such event, Lessor may, in addition to the other rights and
remedies provided for in this Section 17 and in Section 18.1, terminate this
Lease by giving Lessee five (5) days notice of such termination, and this Lease
shall terminate.  Lessee shall, to the fullest extent permitted by law, pay as
Supplemental Rent all costs and expenses incurred by or on behalf of Lessor,
including fees and expenses of counsel, as a result of any Lease Event of
Default hereunder.

          17.2 Final Liquidated Damages.  If a Lease Event of Default shall have
               ------------------------
occurred and be continuing, Lessor shall have the right to recover, by demand to
Lessee and at Lessor's election, and Lessee shall pay to Lessor, as and for
final liquidated damages, but exclusive of the indemnities payable under Section
13 of the Participation Agreement (to the extent any such liabilities do not
constitute Supplemental Rent), and in lieu of all damages beyond the date of
such demand the sum of (a) the Termination Value, plus (b) all other amounts
owing in respect of Rent and Supplemental Rent theretofore accruing under this
Lease.  Upon payment of the amount specified pursuant to the first sentence of
this Section 17.2, Lessee shall be entitled to receive from Lessor, at Lessee's
request and cost, an assignment of Lessor's right, title and interest in the
Equipment, in each case in conformity with local custom and free and clear of
the Lien of the Security Agreement and any Lessor Liens.  The Equipment shall be
quitclaimed to Lessee (or Lessee's designee) "AS IS" and in its then present
physical condition.  If any statute or rule of law shall limit the amount of
such final liquidated damages to less than the amount agreed upon, Lessor shall
be entitled to the maximum amount allowable under such statute or rule of law.

          17.3 Remedies. If any Lease Event of Default shall have occurred and
               --------
be continuing, Lessor may exercise in any order one or more or all of the
remedies set forth in this Section 17.3 (it being understood that no remedy
herein conferred is intended to be exclusive of any other remedy or remedies,
but each and every remedy shall be cumulative and shall be in addition to every
other remedy given herein or now or hereafter existing at law or in equity or by
statute).
<PAGE>

                                                                              17

          (a)  Lessor may proceed by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease or to recover damages for the breach thereof;

          (b)  Lessor may by notice in writing to Lessee terminate this Lease
but Lessee shall remain liable as hereinafter provided; and Lessor may, at its
option, do any one or more of the following: (i) declare the Termination Value,
plus all other amounts owing in respect of Rent or Supplemental Rent theretofore
accruing under the Lease, all other amounts then payable by Lessee under this
Lease and the other Operative Agreements to be immediately due and payable, and
recover any other damages and expenses in addition thereto which Lessor shall
have sustained by reason of such Event of Default; (ii) enforce the security
interest given hereunder pursuant to the Uniform Commercial Code as provided in
Section 28 or any other law; (iii) enter upon the premises where the Equipment
is located and take possession of it; and (iv) require Lessee to return the
Equipment as provided in Section 10.2; or

          (c)  Lessor may require Lessee immediately to purchase the Equipment
for a purchase price equal to the sum of the Termination Value, plus all other
amounts owing in respect of Rent or Supplemental Rent theretofore accruing under
the Lease and all other amounts then due and payable under the Operative
Agreements.

          17.4 Additional Remedies.  In addition to the remedies set forth in
               -------------------
Sections 17.2 and 17.3, if any Lease Event of Default shall have occurred and be
continuing, Lessor may, but is not required to, sell the Equipment in one or
more sales, and Lessor may purchase all or any part of the Equipment at such
sale.  Lessee acknowledges that sales for cash or on credit to a wholesaler,
retailer or user of such Equipment, at a public or private auction, are all
commercially reasonable.  Any notice required by law of intended disposition by
Lessor shall be deemed reasonable and properly given if given at least ten (10)
Business Days before such disposition.

          17.5 Proceeds of Sale; Deficiency.  All payments received and amounts
               ----------------------------
held or realized by the Lessor at any time when a Lease Event of Default shall
have occurred and be continuing and after the Termination Value shall have been
accelerated pursuant to Section 17.2 or 17.3 as well as all payments or amounts
then held or thereafter received by Lessor shall be conveyed to the Agent as
required by the Assignment of Lease and distributed pursuant to Section 8.2 of
the Credit Agreement.

          17.6 Waiver of Certain Rights.  If this Lease shall be terminated
               ------------------------
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by law,
(a) any notice of re-entry or the institution of legal proceedings to obtain re-
entry or possession; (b) any right of redemption, re-entry or repossession; (c)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt; and (d) any other rights which might otherwise
limit or modify any of Lessor's rights or remedies under this Section 17.

          17.7 Assignment of Rights Under Contracts. If a Lease Event of Default
               ------------------------------------
shall have occurred and be continuing, and whether or not this Lease shall have
been terminated pursuant to Section 17.1 and provided that Lessee shall not have
purchased the Equipment pursuant to Section 20, Lessee shall upon Lessor's
demand immediately assign, transfer and set
<PAGE>

                                                                              18

over to Lessor, to the extent transferable, all of Lessee's right, title and
interest in and to each agreement executed by Lessee in connection with the use
or operation of the Equipment (including all right, title and interest of Lessee
with respect to all warranty, performance, service and indemnity provisions), as
and to the extent that the same relate to the use, maintenance or operation of
the Equipment.

                      Section 18.  LESSOR'S RIGHT TO CURE

          18.1 Lessor's Right to Cure Lessee's Lease Defaults.  Lessor, without
               ----------------------------------------------
waiving or releasing any obligation or Lease Event of Default, may (but shall be
under no obligation to) remedy any Lease Event of Default for the account and at
the sole cost and expense of Lessee, including the failure by Lessee to maintain
any insurance required by Section 14, and may, to the fullest extent permitted
by law, and notwithstanding any right of quiet enjoyment in favor of Lessee,
enter upon the premises where the Equipment is located for such purpose and take
all such action thereon as may be necessary or appropriate therefor.  No such
entry shall be deemed an eviction of Lessee.  All reasonable out-of-pocket costs
and expenses so incurred (including the reasonable fees and expenses of
counsel), together with interest thereon at the Overdue Rate from the date on
which such sums or expenses are paid by Lessor, shall be paid by Lessee to
Lessor on demand as Supplemental Rent.

                        Section 19.  LEASE TERMINATION

          19.1 Provisions Relating to Lessee's Termination of this Lease or
               ------------------------------------------------------------
Exercise of Purchase Option.  In connection with any termination of this Lease
---------------------------
with respect to any Equipment pursuant to the terms of Section 16.2, or in
connection with Lessee's exercise of its Purchase Option or Maturity Date
Purchase Option, upon the date on which this Lease is to terminate with respect
to the applicable piece of Equipment or upon the Expiration Date with respect to
the applicable piece of Equipment, and upon tender by Lessee of the amounts set
forth in Section 16.2(b), 20.1 or 20.2, as applicable:

          (a)  Lessor shall execute and deliver to Lessee (or to Lessee's
designee) at Lessee's cost and expense an assignment of Lessor's entire interest
in the applicable Equipment, in each case in recordable form and otherwise in
conformity with local custom and free and clear of the Lien of the Security
Agreement and any Lessor Liens; and

          (b)  The applicable Equipment shall be conveyed to Lessee "AS IS" and
in then present physical condition.

          19.2 Aggregate Tranche A Percentage. Notwithstanding any other
               ------------------------------
provision of this Lease or the other Operative Agreements, the Lessee shall not
be permitted to terminate this Lease with respect to a piece of Equipment
pursuant to Section 16 or exercise its Purchase Option with respect to a piece
of Equipment pursuant to Section 20.1 if the Aggregate Tranche A Percentage,
after giving effect to the termination of this Lease with respect to such piece
of Equipment would be less than 85%.
<PAGE>

                                                                              19

                         Section 20.  PURCHASE OPTION

          20.1 Purchase Option.  Lessee shall have the option (exercisable by
               ---------------
giving Lessor irrevocable written notice (the "Purchase Notice") of Lessee's
                                               ---------------
election, to exercise such option not less than ten (10) days prior to the date
of purchase pursuant to such option) to purchase one or more of the pieces of
Equipment on the date specified in such Purchase Notice, which date must occur
prior to the date which is six months prior to the Maturity Date, at a price
equal to the Termination Value (the "Purchase Option Price") (which the parties
                                      --------------------
do not intend to be a "bargain" purchase price) of such piece of Equipment;
provided, however, that Lessee shall only have such option with respect to less
than all of the Equipment if no Lease Default or Lease Event of Default shall
have occurred and be continuing.  If Lessee exercises its option to purchase one
or more of the pieces of Equipment pursuant to this Section 20.1 (the "Purchase
                                                                       --------
Option"), Lessor shall transfer to Lessee or Lessee's designee all of Lessor's
------
right, title and interest in and to such piece of Equipment as of the date
specified in the Purchase Notice upon receipt of the Purchase Option Price and
all Rent and other amounts then due and payable under this Lease and any other
Operative Agreement, in accordance with Section 19.1.  Notwithstanding the
foregoing, (A) Lessee on not less than three (3) days prior notice may exercise
the Purchase Option to purchase one or more pieces of Equipment if the purchase
of such Equipment will cure an Event of Default and (B) if a purchase option
held by a sublessee or licensee of a piece of Equipment has been exercised, then
Lessee may exercise the Purchase Option with respect to such piece of Equipment
even if a Lease Default or Lease Event of Default has occurred.

          20.2 Maturity Date Purchase Option.  Not less than six months prior to
               -----------------------------
the Maturity Date, Lessee may give Lessor and Agent irrevocable written notice
(the "Maturity Date Election Notice") that Lessee is electing to exercise the
      -----------------------------
Maturity Date Purchase Option.  If Lessee does not give a Maturity Date Election
Notice on or before the date six months prior to the Maturity Date or if Lessee
has not exercised the Purchase Option with respect to all of the Equipment, then
Lessee shall be obligated to remarket the Equipment pursuant to Section 21.  If
Lessee has elected to exercise the Maturity Date Purchase Option, then on the
Maturity Date Lessee shall pay to Lessor an amount equal to the Termination
Value for all the Equipment (which the parties do not intend to be a "bargain"
purchase price) and, upon receipt of such amount plus all Rent and other amounts
then due and payable under this Lease and any other Operative Agreement, Lessor
shall transfer to Lessee or Lessee's designee all of Lessor's right, title and
interest in and to the Equipment in accordance with Section 19.1.

          20.3 Obligation to Purchase All Equipment.  If six months prior to the
               ------------------------------------
Maturity Date, the then Termination Value of all the Equipment is less than the
Maximum Purchase Option Amount, then on the Maturity Date Lessee shall be
required to exercise its Maturity Date Purchase Option on the Maturity Date with
respect to all remaining Equipment.

                        Section 21.  SALE OF EQUIPMENT

          21.1 Sale Procedure. (a) With respect to each piece of Equipment
               --------------
(unless Lessee shall have elected to (x) substitute such Equipment pursuant to
Section 30, (y) purchase
<PAGE>

                                                                              20

such Equipment and has paid the relevant purchase price pursuant to Section 20.1
or 20.2 with respect thereto, or (z) otherwise terminated this Lease and paid
the Termination Value with respect thereto) Lessee shall (i) pay to Lessor the
Maximum Residual Guarantee Amount for such piece of Equipment as provided for in
Section 21.1(c), and (ii) sell such piece of Equipment, to one or more third
parties for cash in accordance with Section 21.1(b).

          (b)  During the Marketing Period, Lessee, as nonexclusive broker for
Lessor, shall use its best efforts to obtain bids for the cash purchase of each
piece of Equipment, being sold for the highest price available in the relevant
market, shall notify Lessor promptly of the name and address of each prospective
purchaser and the cash price which each prospective purchaser shall have offered
to pay for such piece of Equipment and shall provide Lessor with such additional
information about the bids and the bid solicitation procedure as Lessor may
reasonably request from time to time. Lessor may reject any and all bids and may
assume sole responsibility for obtaining bids by giving Lessee written notice to
that effect; provided, however, that notwithstanding the foregoing, Lessor may
             --------  -------
not reject a bid if such bid, together with any amounts to be paid pursuant to
Section 21.3, is greater than or equal to the sum of the Limited Deficiency
Amount and all costs and expenses referred to in Section 21.2(i) and is a bona
fide offer by a third party purchaser who is not an Affiliate of Lessee. If the
price which a prospective purchaser shall have offered to pay for all or any of
the Equipment is less than the sum of the Limited Deficiency Amount and all
costs and expenses referred to in Section 21.2(i), Lessor may elect to retain
the Equipment by giving Lessee at least two Business Days' prior written notice
of Lessor's election to retain the Equipment, and upon receipt of such notice,
Lessee shall surrender the Equipment to Lessor pursuant to Section 10.2. Unless
Lessor shall have elected to retain the Equipment pursuant to the preceding
sentence, following the Maturity Date Lessor shall sell the Equipment free of
any Lessor Liens attributable to it, without recourse or warranty, for cash to
the purchaser or purchasers identified by Lessee or Lessor, as the case may be.
Lessee shall surrender the Equipment so sold to each purchaser in the condition
specified in Section 10.2.

          (c)  On each date during the Marketing Period on which a piece of
Equipment is sold pursuant to Section 21.1(b), and on the Maturity Date with
respect to any Equipment remaining unsold, Lessee shall pay to Lessor the
Maximum Residual Guarantee Amount for such Equipment.

          21.2 Application of Proceeds of Sale. Lessor shall apply the proceeds
               -------------------------------
of sale of each piece of Equipment in the following order of priority:

               (i)   FIRST, to pay or to reimburse Lessor and Lessee for the
                     -----
     payment of all reasonable costs and expenses incurred by Lessor and Lessee
     in connection with the sale; and

               (ii)  SECOND, the balance shall be paid to the Agent to be
                     ------
     applied pursuant to the provisions of Section 8 of the Credit Agreement.

          21.3 Indemnity for Excessive Wear. If the proceeds of the sale
               ----------------------------
described in Section 21.1(b) with respect to any piece of Equipment, less all
expenses incurred by Lessor or Lessee in connection with such sale, shall be
less than the Limited Deficiency Amount for such
<PAGE>

                                                                              21

piece of Equipment at the time of such sale and if it shall have been determined
(pursuant to the Appraisal Procedure) that the Fair Market Sales Value of such
piece of Equipment shall have been impaired by greater than expected wear and
tear during the Term, Lessee shall pay to Lessor within ten (10) days after
receipt of Lessor's written statement (i) the amount of such excess wear and
tear determined by the Appraisal Procedure or (ii) the amount of the Net Sale
Proceeds Shortfall, whichever amount is less; provided that such Wear and Tear
Payments are not intended to prevent Lessee from accounting for this Lease as an
operating lease under SFAS NO. 13.

          21.4 Appraisal Procedure. For determining the Fair Market Sales Value
               -------------------
of a piece of Equipment or any other amount which may, pursuant to any provision
of any Operative Agreement, be determined by an appraisal procedure but with
respect to which no appraisal or valuation method is specified, Lessor and
Lessee shall use the following procedure (the "Appraisal Procedure"). Lessor and
                                               -------------------
Lessee shall endeavor to reach a mutual agreement as to such amount for a period
of ten (10) days from commencement of the Appraisal Procedure, and if they
cannot agree within ten (10) days, then two qualified appraisers, one chosen by
Lessee and one chosen by Lessor, shall mutually agree thereupon, but if either
party shall fail to choose an appraiser within twenty (20) days after notice
from the other party of the selection of its appraiser, then the appraisal by
such appointed appraiser shall be binding on Lessee and Lessor. If the two
appraisers cannot agree within twenty (20) days after both shall have been
appointed, then a third appraiser from a nationally recognized independent
appraisal firm (with at least 15 years of experience appraising equipment
similar to and used in the same industry as the Equipment) shall be selected by
the two appraisers or, failing agreement as to such third appraiser within
thirty (30) days after both shall have been appointed, by the American
Arbitration Association. The decisions of the three appraisers shall be given
within twenty (20) days of the appointment of the third appraiser and the
decision of the appraiser most different from the average of the other two shall
be discarded and such average shall be binding on Lessor and Lessee; provided
                                                                     --------
that if the highest appraisal and the lowest appraisal are equidistant from the
third appraisal, the third appraisal shall be binding on Lessor and Lessee. The
fees and expenses of all of the appraisers shall be paid by the Lessee.

          21.5 Certain Obligations Continue.  During the Marketing Period, the
               ----------------------------
obligation of Lessee to pay Rent with respect to each piece of Equipment
(including the installment of Basic Rent due on the Maturity Date) shall
continue undiminished until payment in full to Lessor of the sale proceeds, the
Maximum Residual Guarantee Amount, if any, the amount due under Section 21.3, if
any, and all other amounts due to Lessor with respect to the piece of Equipment.
Lessor shall have the right, but shall be under no duty, to solicit bids, to
inquire into the efforts of Lessee to obtain bids or otherwise to take action in
connection with any such sale, other than as expressly provided in this Section
21.

                           Section 22.  HOLDING OVER

          22.1 Holding Over. If Lessee shall for any reason remain in possession
               ------------
of a piece of Equipment after the expiration or earlier termination of this
Lease (unless the piece of Equipment is conveyed to Lessee), such possession
shall be as a tenancy at sufferance during
<PAGE>

                                                                              22

which time Lessee shall continue to pay Supplemental Rent that would be payable
by Lessee hereunder were the Lease then in full force and effect with respect to
such piece of Equipment and Lessee shall continue to pay Basic Rent at an annual
rate equal to the rate payable hereunder immediately preceding such expiration
or earlier termination; provided, however, that from and after the sixtieth
                        --------  -------
(60th) day Lessee shall remain in possession of such piece of Equipment after
such expiration or earlier termination, Lessee shall pay Basic Rent at an annual
rate equal to two hundred percent (200%) of the Basic Rent payable hereunder
immediately preceding such expiration or earlier termination. Such Basic Rent
shall be payable from time to time upon demand by Lessor. During any period of
tenancy at sufferance, Lessee shall, subject to the second preceding sentence,
be obligated to perform and observe all of the terms, covenants and conditions
of this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to tenants at sufferance, to continue its occupancy and use
of the piece of Equipment. Nothing contained in this Section 22 shall constitute
the consent, express or implied, of Lessor to the holding over of Lessee after
the expiration or earlier termination of this Lease as to any piece of Equipment
and nothing contained herein shall be read or construed as preventing Lessor
from maintaining a suit for possession of any piece of Equipment or exercising
any other remedy available to Lessor at law or in equity.

                           Section 23.  RISK OF LOSS

          23.1 Risk of Loss. The risk of loss of or decrease in the enjoyment
               ------------
and beneficial use of the Equipment as a result of the damage or destruction
thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is
assumed by Lessee, and Lessor shall in no event be answerable or accountable
therefor (except specifically with respect to its gross negligence or wilful
misconduct).

                    Section 24.  SUBLETTING AND ASSIGNMENT

          24.1 Subletting and Assignment. Lessee may not assign this Lease or
               -------------------------
any of its rights or obligations hereunder in whole or in part other than as
permitted by the Operative Agreements. Lessee may, without the consent of
Lessor, sublease or license the Equipment or any piece of Equipment to any
Person; provided that as of the Expiration Date unless Lessee has exercised its
        --------
Purchase Option or Maturity Date Purchase Option with respect to the Equipment
subject to a sublease or license, no sublease or license shall provide for a
purchase option on behalf of the sublessee or licensee nor have a remaining term
of more than six months. No sublease, license or other relinquishment of
possession of the Equipment shall in any way discharge or diminish any of
Lessee's obligations to Lessor hereunder and Lessee shall remain directly and
primarily liable under this Lease as to the Equipment so sublet or licensed.

          24.2 Subleases or Licenses.  Promptly following the execution and
               ---------------------
delivery of any sublease or license permitted by this Section 24, Lessee shall
deliver an executed copy thereof to Lessor and the Agent if requested by either.
<PAGE>

                                                                              23

                    Section 25.  ESTOPPEL CERTIFICATES

          25.1  Estoppel Certificates.  At any time and from time to time upon
                ---------------------
not less than twenty (20) days' prior request by Lessor, the Lessee shall
furnish to the Lessor a certificate signed by an individual having the office of
vice president or higher with Lessee certifying, to the extent accurate, that
this Lease is in full force and effect (or that this Lease is in full force and
effect as modified and setting forth the modifications); the dates to which the
Basic Rent and Supplemental Rent have been paid; to the best knowledge of the
signer of such certificate, whether or not the Lessor is in default under any of
its obligations hereunder (and, if so, the nature of such alleged default); and
such other matters under this Lease as the Lessor may reasonably request. Any
such certificate furnished pursuant to this Section 25 may be relied upon by the
Lessor, and any existing or prospective purchaser or lender, and any accountant
or auditor, of, from or to the Lessor (or any Affiliate thereof).

                    Section 26.  NO WAIVER

          26.1  No Waiver.  No failure by Lessor or Lessee to insist upon the
                ---------
strict performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default, shall constitute a waiver of any
such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.

                    Section 27.  ACCEPTANCE OF SURRENDER

          27.1  Acceptance of Surrender.  (a)  As of the Expiration Date, if any
                -----------------------
Lease Default shall have occurred and be continuing under the Lease or the
representations and warranties set forth in Section 7.5(h)-(m) of the
Participation Agreement shall not be true and correct in any material respects,
then Lessee shall be deemed to have irrevocably exercised the Maturity Date
Purchase Option pursuant to Section 20.2.

          (b)   Except as otherwise expressly provided in this Lease, no
surrender to Lessor of this Lease or of all or any portion of the Equipment or
of any interest therein shall be valid or effective unless agreed to and
accepted in writing by Lessor and, prior to the payment or performance of all
obligations under the Credit Documents, the Agent, and no act by Lessor or the
Agent or any representative or agent of Lessor or the Agent, other than a
written acceptance, shall constitute an acceptance of any such surrender.
<PAGE>

                                                                              24

                    Section 28.  OWNERSHIP, GRANT OF SECURITY
                        INTEREST AND FURTHER ASSURANCES

          28.1  Grant of Security Interest.  Other than Equipment purchased by
                --------------------------
Lessee pursuant to Section 20 and subject to Section 7.1, title to the equipment
shall remain in Lessor as security for the obligations of the Guarantors under
the Guarantee and the obligations of Lessee hereunder and under each of the
other Operative Agreements to which it is a party, until such time as Lessee and
the Guarantors have fulfilled all of their obligations hereunder and under such
other Operative Agreements.  Lessee hereby assigns, grants and pledges to Lessor
for the benefit of Lessor a security interest in all of Lessee's right, title
and interest, whether now or hereafter existing or acquired, in the Equipment
(other than Equipment purchased by Lessee pursuant to Section 20), to secure the
payment and performance of all obligations of Lessee now or hereafter existing
under this Lease or any other Operative Agreement and of the Guarantors under
the Guarantee (the "Lease Secured Obligations").  Lessee shall, at its expense,
                    -------------------------
do any further act and execute, acknowledge, deliver, file, register and record
any further documents which Lessor may reasonably request in order to protect
Lessor's title to and perfected security interest in the Equipment, subject to
no Liens other than Permitted Liens, and Lessor's rights and benefits under this
Lease.  Subject to the provisions of Section 10.3(b) of the Lease, Lessee shall
promptly and duly execute and deliver to Lessor such documents and assurances
and take such further action as Lessor may from time to time reasonably request
in order to carry out more effectively the intent and purpose of this Lease and
the other Operative Agreements, to establish and protect the rights and remedies
created or intended to be created in favor of Lessor hereunder and thereunder,
and to establish, perfect and maintain the right, title and interest of Lessor,
in and to the Equipment, subject to no Lien other than Permitted Liens and
Lessor Liens, or of such financing statements or fixture filings or other
documents with respect hereto as Lessor may from time to time reasonably
request, and Lessee agrees to execute and deliver promptly such of the foregoing
financing statements and fixture filings or other documents as may require
execution by Lessee.  To the extent permitted by applicable laws, Lessee hereby
authorizes any such financing statements and fixture filings to be filed without
the necessity of the signature of Lessee, if Lessee has failed to sign any such
instrument within 10 Business Days after written request therefor by Lessor.

          28.2  UCC Remedies.  If a Lease Event of Default shall occur and be
                ------------
continuing, Lessor may exercise, in addition to all other rights and remedies
granted to it in this Lease and in any other Operative Agreement, all rights and
remedies of a secured party under the UCC.  Without limiting the generality of
the foregoing, Lessor, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon Lessee or any other Person (all
and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Equipment, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Equipment or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of Lessor or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lessor shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Equipment
<PAGE>

                                                                              25

so sold, free of any right or equity of redemption in which right or equity is
hereby waived or released. Lessee further agrees, at Lessor's request, to
assemble the Equipment and make it available to the Lessor at places which the
Lessor shall reasonably select, whether at Lessee's premises or elsewhere.
Lessor shall apply the net proceeds of any action taken by it pursuant to this
subsection, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
of the Equipment or in any way relating to the Equipment or the rights of
Lessor, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Lease Secured
Obligations, in such order as Lessor may elect, and only after such application
and after the payment by Lessor of any other amount required by any provision of
law, including, without limitation, Section 9-504(1)(c) of the UCC, need Lessor
account for the surplus, if any, to Lessee. If any notice of a proposed sale or
other disposition of the Equipment shall be required by law, such notice shall
be deemed reasonable and proper if given at lease 10 Business Days before such
sale or other disposition.

          28.3  Waiver; Deficiency.  Lessee waives and agrees not to assert any
                ------------------
rights or privileges which it may acquire under Section 9-112 of the UCC.
Lessee shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Equipment are insufficient to pay the Lease Secured
Obligations and the reasonable fees and disbursements of any attorneys employed
by Lessor to collect such deficiency.

          28.4  Agent's Appointment as Attorney-in-Fact; Agent's Performance of
                ---------------------------------------------------------------
Lessee's Obligations.  Lessee hereby irrevocably constitutes and appoints the
--------------------
Agent and any officer or agent thereof, as assignee of all of Lessor's right
under this Lease pursuant to the Assignment of Lease, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Lessee and in the name of Lessee
or in its own name, from time to time in the Agent's discretion, for the purpose
of carrying out the terms of this Lease, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Lease, and, without limiting the
generality of the foregoing, Lessee hereby gives the Agent the power and right,
on behalf of Lessee, without notice to or assent by Lessee, to do any or all of
the following:

          (a)   in the name of Lessee or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under or with respect to the
Equipment and file any claim or take any other action or proceeding in any court
of law or equity or otherwise deemed appropriate by the Agent for the purpose of
collecting any and all such moneys due under or with respect to the Equipment
whenever payable;

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

          (c)   execute, in connection with the sale provided for in Section
28.2 hereof, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Equipment; and
<PAGE>

                                                                              26

          (d)   (1) direct any party liable for any payment under any of the
Equipment to make payment of any and all moneys due or to become due thereunder
directly to the Agent or as the Agent shall direct; (2) ask or demand for,
collect, receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Equipment; (3) sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Equipment; (4) commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to enforce any other
right in respect of any Equipment; (5) defend any suit, action or proceeding
brought against Lessee with respect to any Equipment; (6) settle, compromise or
adjust any such suit, action or proceeding and, in connection therewith, to give
such discharges or releases as the Agent may deem appropriate; and (7)
generally, sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Equipment as fully and completely as thought the
Agent were the absolute owner thereof for all purposes, and do, at the Agent's
option and the Lessee's expense, at any time, or from time to time, all acts and
things which the Agent reasonably deems necessary to protect, preserve or
realize upon the Equipment and the Agent's security interests therein and to
effect the intent of this Lease, all as fully and effectively as the Lease might
do.

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

                    Section 29.  NOTICES

          29.1  Notices.  Unless otherwise specifically provided herein, all
                -------
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person to be effective shall be in writing (including by facsimile transmission)
and shall be deemed to have been duly given or made (a) when delivered by hand,
(b) one Business Day after delivery to such nationally recognized courier
service specifying overnight delivery, (c) three Business Days after being
deposited in the mail, certified or registered, postage prepaid or (d) in the
case of facsimile notice, when received, addressed to such Person as indicated:

          If to Lessee:     Hanover Compression Inc.
                            12001 North Houston Rosslyn
                            Houston, Texas 77806
                            Attention: Chief Financial Officer
                            Telecopy: (281) 447-0821

          With a copy to:   Latham & Watkins
                            Sears Tower, Suite 5800
                            233 South Wacker Drive
                            Chicago, Illinois 60606
<PAGE>

                                                                              27

                        Attention: Richard S. Meller and Michael A. Pucker
                        Telecopy: (312) 993-9767

          If to Lessor: Hanover Equipment Trust 2000B
                        C/O Wilmington Trust Company
                        Rodney Square North
                        1100 North Market Street
                        Wilmington, Delaware 19890
                        Attention: Corporate Trust Administration
                        Telecopy: (302) 651-8882

          with a copy to the Agent:

                        The Chase Manhattan Bank
                        Loan and Agency Services Group
                        One Chase Manhattan Plaza
                        New York, New York 10081
                        Attention: Agency Services
                        Telecopy: (212) 552-5777

                        and

                        Credit and Lending
                        The Chase Manhattan Bank
                        270 Park Avenue
                        32nd Floor
                        New York, NY 10017
                        Attention: Steve Wood
                        Telecopy: (212) 270-3897

or such additional parties and/or other address as such party may hereafter
designate.

                    Section 30.  SUBSTITUTION

          30.1  Substitution.  Lessee shall be entitled to convey to Lessor one
                ------------
or more pieces of Equipment ("Replacement Equipment") to be leased to Lessee
                              ---------------------
hereunder as substitution for Equipment which is (i) the subject of a
Significant Casualty or Significant Condemnation, (ii) purchased by the
sublessee of such Equipment or (iii) purchased by or on behalf of Lessee as
permitted by Section 20.1(A) hereof; provided, such Replacement Equipment to be
                                     --------
free and clear of all Liens (other than Permitted Liens) and to have a value,
utility and remaining economic useful life at least equal to the Equipment being
replaced (assuming the
<PAGE>

                                                                              28

Equipment being replaced was in the condition required to be maintained by the
terms of this Lease) as of the Replacement Equipment Closing Date; provided,
further, that no Equipment shall be replaced unless the following conditions are
met as of the Replacement Equipment Closing Date:

          (a)   no Event of Default shall have occurred and be continuing;

          (b)   no more than 5% of the Equipment (including the Replacement
Equipment) will be located in an Unperfected Jurisdiction;

          (c)   the aggregate amount of Replacement Equipment since the Initial
Closing Date shall not exceed 25% of the Termination Value;

          (d)   the representations and warranties of the Lessee contained in
Subsection 7.5 of the Participation Agreement and in Section 9 of the Guarantee
shall be true and correct in all material respects as of the date such
substitution occurs;

          (e)   Subsections 6.2(a)-(f) to the Participation Agreement shall have
been satisfied or waived with respect to such Replacement Equipment; and

          (f)   the Lessee shall have delivered an Officer's Certificate to the
Lessor, Agent and the Investor at least five (5) days prior to the date such
substitution shall occur, setting forth the location of the Replacement
Equipment and certifying that the conditions set forth in paragraphs (a) through
(e) above have been satisfied.

                    Section 31.  MISCELLANEOUS

          31.1  Miscellaneous.  Anything contained in this Lease to the contrary
                -------------
notwithstanding, all claims against and liabilities of Lessee or Lessor arising
from events commencing prior to the expiration or earlier termination of this
Lease shall survive such expiration or earlier termination.  If any term or
provision of this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby.

          31.2  Amendments and Modifications.  Neither this Lease nor any
                ----------------------------
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Lessor and Lessee.

          31.3  Successors and Assigns.  All the terms and provisions of this
                ----------------------
Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

          31.4  Headings and Table of Contents.  The headings and table of
                ------------------------------
contents in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
<PAGE>

                                                                              29

          31.5  Counterparts.  This Lease may be executed in any number of
                ------------
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.

          31.6  GOVERNING LAW.  THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN
                -------------
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.

          31.7  Limitations on Recourse.  Except as expressly set forth in the
                -----------------------
Operative Agreements, Lessee agrees to look solely to Lessor's estate and
interest in the Equipment, the proceeds of sale thereof, any insurance proceeds
or any other award or any third party proceeds received by Lessor in connection
with the Equipment for the collection of any judgment requiring the payment of
money by Lessor in the event of liability by Lessor, and no other property or
assets of Lessor, the Trust Company member, partner or other owner of an
interest, direct or indirect, in Lessor, or any director, officer, shareholder,
employee, beneficiary, Affiliate of any of the foregoing shall be subject to
levy, execution or other enforcement procedure for the satisfaction of Lessee's
remedies under or with respect to this Lease, the relationship of Lessor and
Lessee hereunder or Lessee's use of the Equipment or any other liability of
Lessor to Lessee.  Nothing in this Section shall be interpreted so as to limit
the terms of Section 6.1 or 6.2.

          31.8  Priority.  On and prior to the Maturity Date, the Security
                --------
Agreement shall be subject and subordinate to this Lease and following the
Maturity Date, the Security Agreement, at the sole election of the Agent, shall
be senior to this Lease without any further act by any Person.
<PAGE>

                                                                              30

          IN WITNESS WHEREOF, the parties have caused this Lease be duly
executed and delivered as of the date first above written.

                              HANOVER COMPRESSION INC.

                              By:   ____________________________________
                                    Name:
                                    Title:

                              HANOVER EQUIPMENT TRUST 2000B

                              By:   Wilmington Trust Company, not individually
                                    but solely as Trustee

                              By:   ____________________________________
                                    Name:
                                    Title:

          The undersigned agrees to the provisions of Section 28.4 and
acknowledges receipt of this original counterpart of the foregoing Lease on this
__th day of October, 2000.

                              THE CHASE MANHATTAN BANK, as the Agent for the
                                         Lenders

                              By:   ____________________________________

                                    Name:
                                    Title:
<PAGE>

                                                                              31

                                                                       EXHIBIT A

                            LEASE SUPPLEMENT NO. __

          THIS LEASE SUPPLEMENT NO. __ (this "Lease Supplement") dated as of
                                              ----------------
_______________, between HANOVER EQUIPMENT TRUST 2000B, a Delaware business
trust, as lessor (the "Lessor"), and HANOVER COMPRESSION INC., a Delaware
                       ------
corporation, as lessee (the "Lessee").
                             ------

          WHEREAS, the Lessor is the owner of the Equipment described on
Schedule I hereto (the "Leased Equipment") and wishes to lease the same to the
                        ----------------
Lessee;

          NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

          1.   Definitions; Rules of Usage.  For purposes of this Lease
               ---------------------------
Supplement, capitalized terms used herein and not otherwise herein shall have
the meanings assigned to them in Annex A to the Participation Agreement, dated
as of October 27, 2000, among the Lessee, the Lessor, the Investors, the Agent,
and the Lenders, as it may be amended, supplemented or otherwise modified from
time to time.

          2.   The Equipment.  Attached hereto as Schedule I is the description
               -------------
of the Leased Equipment. Effective upon the execution and delivery of this Lease
Supplement by the Lessor and the Lessee, the Leased Equipment shall be subject
to the terms and provisions of the Lease.

          3.   Ratification.  Except as specifically modified hereby, the terms
               ------------
and provisions of the Lease are hereby ratified and confirmed and remain in full
force and effect.

          4.   Original Lease Supplement.  The single executed original of this
               -------------------------
Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART"
on the signature page thereof and containing the receipt of the Agent therefor
on or following the signature page thereof shall be the Original Executed
Counterpart of this Lease Supplement (the "Original Executed Counterpart").  To
                                           -----------------------------
the extent that this Lease Supplement constitutes chattel paper, as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction, no security interest in this Lease Supplement may be created
through the transfer or possession of any counterpart other than the Original
Executed Counterpart.

          5.   GOVERNING LAW.  THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN
               -------------
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.
<PAGE>

                                                                              32

          6.   Counterpart Execution.  This Lease Supplement may be executed in
               ---------------------
any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the same
instrument.

          7.   Recordation.  The Lessor and the Lessee agree that a memorandum
               -----------
of this Lease Supplement No. __ shall be recorded at the Lessee's sole cost and
expense as required by the Lease.
<PAGE>

                                                                              33

IN WITNESS WHEREOF, the parties have caused this Lease Supplement No. __ be duly
executed and delivered as of the date first above written.

                              HANOVER COMPRESSION INC.

                              By:   ___________________________________
                                    Name:
                                    Title:

                              HANOVER EQUIPMENT TRUST 2000B

                              By:   Wilmington Trust Company, not in its
                                    individual capacity but solely as Trustee

                              By:   _____________________________
                                    Name:
                                    Title:
<PAGE>

                                                                              34

          Receipt of this original counterpart of the foregoing Lease Supplement
is hereby acknowledged on this ___ day of ______, _____.

                              THE CHASE MANHATTAN BANK, as the Agent for the
                                         Lenders

                              By:   ___________________________________
                                    Name:
                                    Title:
<PAGE>

                                                                               1

Exhibits

Exhibit A     Lease Supplement<PAGE>

                                                                   EXHIBIT 10.55

                                                                  EXECUTION COPY

                                   GUARANTEE

                                    made by

                          HANOVER COMPRESSOR COMPANY

                           HANOVER COMPRESSION INC.

                       and certain of their Subsidiaries

                         Dated as of October 27, 2000
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                              <C>
1.       Defined Terms.........................................................................................   1
--       -------------

2.       Guaranty..............................................................................................   2
--       --------

3.       Right of Set-off......................................................................................   3
--       ----------------

4.       No Subrogation........................................................................................   3
--       --------------

5.       Amendments, etc. with respect to the Guaranteed Obligations; Waiver of Rights.........................   3
--       -----------------------------------------------------------------------------

6.       Guarantee Absolute and Unconditional..................................................................   4
--       ------------------------------------

7.       Reinstatement.........................................................................................   5
--       -------------

8.       Payments..............................................................................................   5
--       --------

9.       Representations, Warranties...........................................................................   5
--       ---------------------------
         9.1      Financial Condition..........................................................................   5
         ---      -------------------
         9.2      No Change....................................................................................   6
         ---      ---------
         9.3      Corporate Existence; Compliance with Law.....................................................   6
         ---      ----------------------------------------
         9.4      Corporate Power; Authorization; Enforceable Obligations......................................   6
         ---      -------------------------------------------------------
         9.5      No Legal Bar.................................................................................   7
         ---      ------------
         9.6      No Material Litigation.......................................................................   7
         ---      ----------------------
         9.7      No Default...................................................................................   7
         ---      ----------
         9.8      Ownership of Property; Liens; Leases of Equipment............................................   7
         ---      -------------------------------------------------
         9.9      Intellectual Property........................................................................   8
         ---      ---------------------
         9.10     Taxes........................................................................................   8
         ----     -----
         9.11     Federal Regulations..........................................................................   8
         ----     -------------------
         9.12     ERISA........................................................................................   8
         ----     -----
         9.13     Investment Company Act; Other Regulations....................................................   9
         ----     -----------------------------------------
         9.14     Subsidiaries.................................................................................   9
         ----     ------------
         9.15     Environmental Matters........................................................................   9
         ----     ---------------------
         9.16     Accuracy and Completeness of Information.....................................................  10
         ----     ----------------------------------------
         9.17     Senior Indebtedness..........................................................................  10
         ----     -------------------
         9.18     Representations and Warranties in Equipment Guarantees.......................................  10
         ----     ------------------------------------------------------

10.      Affirmative Covenants of the Guarantor................................................................  10
---      --------------------------------------
         10.1     Financial Statements.........................................................................  10
         ----     --------------------
         10.2     Certificates; Other Information..............................................................  11
         ----     -------------------------------
         10.3     Payment of Obligations.......................................................................  12
         ----     ----------------------
         10.4     Conduct of Business and Maintenance of Existence.............................................  12
         ----     ------------------------------------------------
         10.5     Maintenance of Property; Insurance...........................................................  13
         ----     ----------------------------------
</TABLE>
<PAGE>

<TABLE>
<S>                                                                                                              <C>
                                                                                                                Page
                                                                                                                ----
         10.6     Inspection of Property; Books and Records; Discussions.......................................  13
         ----     ------------------------------------------------------
         10.7     Notices......................................................................................  13
         ----     -------
         10.8     Environmental Laws...........................................................................  14
         ----     ------------------
         10.9     Subsequent Guarantees........................................................................  15
         ----     ---------------------

11.      Negative Covenants....................................................................................  15
---      ------------------
         11.1     Financial Condition Covenants................................................................  15
         ----     -----------------------------
         11.2     Limitation on Indebtedness...................................................................  16
         ----     --------------------------
         11.3     Limitation on Liens..........................................................................  17
         ----     -------------------
         11.4     Limitation on Guarantee Obligations.  Create, incur, assume or suffer to exist any
         ----     ----------------------------------------------------------------------------------
                  Guarantee Obligation except:.................................................................  19
                  ----------------------------
         11.5     Limitations on Fundamental Changes...........................................................  19
         ----     ----------------------------------
         11.6     Limitation on Sale or Lease of Assets........................................................  20
         ----     -------------------------------------
         11.7     Limitation on Leases.........................................................................  21
         ----     --------------------
         11.8     Limitation on Dividends......................................................................  21
         ----     -----------------------
         11.9     Limitation on Derivatives....................................................................  22
         ----     -------------------------
         11.10    Limitation on Investments, Loans and Advances................................................  22
         -----    ---------------------------------------------
         11.11    Limitation on Optional Payments and Modifications of Debt Instruments........................  23
         -----    ---------------------------------------------------------------------
         11.12    Transactions with Affiliates.................................................................  23
         -----    ----------------------------
         11.13    Sale and Leaseback...........................................................................  23
         -----    ------------------
         11.14    Corporate Documents..........................................................................  24
         -----    -------------------
         11.15    Fiscal Year..................................................................................  24
         -----    -----------
         11.16    Nature of Business...........................................................................  24
         -----    ------------------
         11.17    Unqualified Subsidiaries.....................................................................  24
         -----    ------------------------

12.      Miscellaneous.........................................................................................  24
---      -------------
         12.1     Notices......................................................................................  24
         ----     -------
         12.2     Severability.................................................................................  25
         ----     ------------
         12.3     Integration..................................................................................  25
         ----     -----------
         12.4     Amendments in Writing; No Waiver; Cumulative Remedies........................................  25
         ----     -----------------------------------------------------
         12.5     Section Headings.............................................................................  25
         ----     ----------------
         12.6     Successors and Assigns.......................................................................  25
         ----     ----------------------
         12.7     SUBMISSION TO JURISDICTION; WAIVERS..........................................................  26
         ----     -----------------------------------
         12.8     GOVERNING LAW................................................................................  26
         ----     -------------
         12.9     Survival of Representations, Warranties, etc.................................................  26
         ----     --------------------------------------------
         12.10    Authority of Agent...........................................................................  27
         -----    ------------------
         12.11    Third Party Beneficiaries....................................................................  27
         -----    -------------------------
         12.12    Right of Contribution........................................................................  27
         -----    ---------------------
         12.13    WAIVER OF JURY TRIAL.........................................................................  27
         -----    --------------------
</TABLE>

                                      ii
<PAGE>

                                                                            Page
                                                                            ----

Schedules
Schedule  9.2        Material Changes
Schedule  9.4        Required Consents
Schedule  9.14       Subsidiaries
Schedule  9.15       Environmental
Schedule  11.2       Existing Indebtedness
Schedule  11.3(1)    Existing Liens
Schedule  11.3(n)    Additional Existing Liens
Schedule  11.3(t)    Additional Liens
Schedule  11.6(i)    Lease of Assets
Schedule  11.12      Affiliate Transactions
Schedule  11.13      Sale and Leaseback Transactions

                                      iii
<PAGE>

                                                                               1

                                   GUARANTEE

          GUARANTEE dated as of October 27, 2000, made by HANOVER COMPRESSOR
COMPANY, a Delaware corporation, HANOVER COMPRESSION INC., a Delaware
corporation, and each of their Subsidiaries that are signatories hereto
(individually, a "Guarantor", collectively, the "Guarantors"), in favor of the
                  ---------                      ----------
Beneficiaries (as hereinafter defined).

                             Preliminary Statement
                             ---------------------

          The Guarantors wish to induce (i) Hanover Equipment Trust 2000B (the
"Lessor") to enter into the Lease and the other Operative Agreements to which it
 ------
is a party; (ii) the Lenders to enter into the Credit Agreement and the other
Operative Agreements to which they are party; and (iii)Bank Hapoalim B.M. and
FBTC Leasing Corp. (the "Investors") to enter into the Participation Agreement
                         ---------
(as hereinafter defined) and the other Operative Agreements to which they are a
party.

          NOW, THEREFORE, in consideration of the premises contained herein and
to induce (i) the Lessor to enter into the Lease and the other Operative
Agreements to which it is a party; (ii) the Lenders to enter into the Credit
Agreement and the other Operative Agreements to which it is a party; and (iii)
the Investors to enter into the Participation Agreement and the other Operative
Agreements to which it is a party, the Guarantors hereby agree for the benefit
of the Lessor, the Agent, for the ratable benefit of the Lenders and the
Investors and their respective successors and assigns (individually a
"Beneficiary", collectively, the "Beneficiaries"), as follows:
 -----------                      -------------

          1.   Defined Terms. (a) Capitalized terms not otherwise defined herein
          ------------------
(including in the Preliminary Statement) shall have the meanings ascribed to
them in Annex A to the Participation Agreement dated as of the date hereof among
        -------
Hanover Compression Inc. ("HCC"), the Lessor, the Investors, The Chase Manhattan
                           ---
Bank, as agent (the "Agent") and the several banks and financial institutions
                     -----
from time to time party thereto (the "Lenders"), as the same may from time to
                                      -------
time be amended, supplemented or otherwise modified (the "Participation
                                                          -------------
Agreement").
---------

          (b)  As used herein, the following terms shall have the following
meanings:

               "Agreement" means this Guarantee, as the same may be amended,
                ---------
supplemented or otherwise modified from time to time.

               "Contribution Obligations" means the collective reference to the
                ------------------------
outstanding amount of the Investor Contributions and the Investor Yield with
respect thereto and all rights of the Investors to receive distributions under
the Trust Agreement and any of the other Operative Agreements.

               "Guaranteed Obligations" means the collective reference to (i)
                ----------------------
the Note Obligations, (ii) the Contribution Obligations and (iii) the Lease
Obligations and, with respect to each such obligation, interest accruing thereon
at the applicable rate provided in the Operative Agreements after maturity and
interest accruing at the then applicable rate provided in the
<PAGE>

                                                                               2

Operative Agreements after the filing of any petition in bankruptcy, or the
commencement of an insolvency, reorganization or like proceeding, whether or not
a claim for post-filing or post-petition interest is allowed in such proceeding
and whether such obligations are direct or indirect, absolute or contingent, due
or to become due, or now existing or hereinafter incurred, which may arise,
under, out of or in connection with any of the Operative Agreements, any other
document made, delivered or given in connection therewith, in each case whether
on account of principal, interest, Investor Contributions or Investor Yield,
reimbursement obligations, fees, indemnities, costs, expenses, or payment
obligations (including, without limitation, all fees and disbursements of
counsel to any of the Beneficiaries that are required to be paid by HCC pursuant
to the terms of the Operative Agreements).

               "Lease Obligations" means the collective reference to the payment
                -----------------
obligations and undertakings applicable to HCC contained in or arising under the
Lease or any of the other Operative Agreements to which HCC is a party,
including, but not limited to, the full and punctual payment by HCC, when due,
of any and all Rent, the payments required pursuant to Section 17.2 and 17.3 of
the Lease, the Purchase Option Price and the Maximum Residual Guarantee Amount.

               "Note Obligations" means the collective reference to the unpaid
                ----------------
principal of and interest on the Notes and all other payment obligations and
liabilities of the Lessor to the Agent and the Lenders under the Notes, the
Credit Agreement and any of the other Operative Agreements.

          2.   Guaranty.  (a)  Subject to the provisions of paragraph 2(b) and
          -------------
(c), the Guarantors hereby, jointly and severally, unconditionally and
irrevocably guaranty to the Beneficiaries and their respective successors,
endorsees, transferees and assigns the prompt and complete payment when due
(whether at the stated maturity, by acceleration or otherwise) of the Guaranteed
Obligations.

          (b)  Anything to the contrary notwithstanding, the Guarantors shall
not at anytime be required to make any payment with regard to the Tranche B
Loans or with respect to the Contribution Obligations unless at such time a
Lease Event of Default has occurred and is continuing.

          (c)  Anything herein or in any other Operative Agreement to the
contrary notwithstanding, the maximum liability of each Guarantor (other than
Holdings and HCC) hereunder and under the other Operative Agreement shall in no
event exceed the amount which can be guaranteed by such Guarantor under
applicable federal and state laws relating to the insolvency of debtors.

          (d)  The Guarantors further agree, jointly and severally, to pay any
and all costs, expenses (including all fees and disbursements of counsel) and
damages which may be paid or incurred in enforcing, or obtaining advice of
counsel in respect of, any rights with respect to, or collecting from the
Guarantors, any or all of the Guaranteed Obligations and/or enforcing any rights
with respect to, or collecting against, the Guarantors under this Guarantee.
<PAGE>

                                                                               3

          3.   Right of Set-off.  In addition to any rights now or hereafter
          ---------------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each of the Investors, Agent and each Lender is hereby authorized at
any time or from time to time, without presentment, demand, protest or other
notice of any kind to the Borrower, the Guarantors or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by such Investor, Agent or such Lender (including,
without limitation, by branches and agencies of such Investor, Agent or such
Lender wherever located) to or for the credit or the account of the Guarantors
against and on account of the obligations and liabilities of the Guarantors
hereunder or under any of the other Operative Agreements, and all other claims
of any nature or description arising out of or connected with this Guarantee or
any other Operative Agreement, irrespective of whether such Investor, Agent or
such Lender shall have made any demand hereunder and although said obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.  Each
of the Investors, Agent and each Lender shall notify such Guarantor promptly of
any such set-off and the application made by such Investor, Agent or such
Lender; provided, that the failure to give such notice shall not affect the
        --------
validity of such set-off and application.

          4.   No Subrogation.  Notwithstanding any payment or payments made by
          -------------------
the Guarantors hereunder or any set-off or application of funds of the
Guarantors by any Lender, the Guarantors shall not be entitled to exercise or
enforce any subrogation rights of the Investors, Agent or any Lender against the
Borrower or any other Person or any collateral security or guarantee or right of
offset held by the Investors, Agent or any Lender for the payment of the
Guaranteed Obligations, nor shall the Guarantors seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Person in respect
of payments made by the Guarantors hereunder, until all amounts owing to the
Investors, Agent and the Lenders by the Borrower on account of the Guaranteed
Obligations and all amounts owing hereunder are paid in full and the Commitments
are terminated. If any amount shall be paid to the Guarantors on account of such
subrogation rights at any time when all of the Guaranteed Obligations and all
amounts owing hereunder shall not have been paid in full or the Commitments
shall not have been terminated, such amount shall be held by the Guarantors in
trust for the Investors, Agent and the Lenders, segregated from other funds of
the Guarantors, and shall, forthwith upon receipt by the Guarantors, be turned
over to the Agent in the exact form received by the Guarantors (duly indorsed by
the Guarantors to the Agent, if required), to be applied against the Guaranteed
Obligations, whether matured or unmatured, in such order as the Agent may
determine.

          5.   Amendments, etc. with respect to the Guaranteed Obligations;
          ----------------------------------------------------------------
Waiver of Rights.  The Guarantors shall remain obligated hereunder
----------------
notwithstanding that, without any reservation of rights against the Guarantors
and without notice to or further assent by the Guarantors, any demand for
payment of any of the Guaranteed Obligations made by the Investors, Agent or any
Lender may be rescinded by such party and any of the Guaranteed Obligations
continued, and the Guaranteed Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Investors, Agent or any
<PAGE>

                                                                               4

Lender, and the Credit Agreement, the Participation Agreement and the other
Operative Agreements may be amended, modified, supplemented or terminated, in
whole or in part, as the Agent (or the Required Lenders, as the case may be) may
deem advisable from time to time in accordance with the terms thereof, and any
collateral security, guarantee or right of offset at any time held by the
Investors, Agent or any Lender for the payment of the Guaranteed Obligations may
be sold, exchanged, waived, surrendered or released. Neither the Investors,
Agent nor any Lender shall have any obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the Guaranteed
Obligations or for this Guarantee or any property subject thereto. When making
any demand hereunder against the Guarantors, the Investors, Agent or any Lender
may, but shall be under no obligation to, make a similar demand on the Borrower
or any other guarantor, and any failure by the Investors, Agent or any Lender to
make any such demand or to collect any payments from the Borrower or any other
guarantor or any release of the Borrower or such other guarantor shall not
relieve the Guarantors from their obligations under this Guarantee, and shall
not impair or affect the rights and remedies, express or implied, or as a matter
of law, of the Investors, Agent or any Lender against the Guarantors. For the
purposes hereof "demand" shall include the commencement and continuance of any
legal proceedings.

          6.   Guarantee Absolute and Unconditional.  Each Guarantor waives any
          -----------------------------------------
and all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Investors,
Agent or any Lender upon this Guarantee or acceptance of this Guarantee, the
Guaranteed Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended or waived,
in reliance upon this Guarantee; and all dealings between the Borrower and such
Guarantor, on the one hand, and the Agent and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon this Guarantee.  Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Borrower or such Guarantor with respect to the Guaranteed Obligations.  Each
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee and surety of payment without
regard to (a) the validity, regularity or enforceability of the Credit Agreement
or any other Operative Agreement, any of the Guaranteed Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Investors, Agent or any
Lender, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted by
the Borrower or such Guarantor against the Investors, Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge of
the Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Guaranteed
Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any
other instance.  When pursuing its rights and remedies hereunder against any
Guarantor, the Investors, the Agent and any Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against the
Borrower or any other Person or against any collateral security or guarantee for
the Guaranteed Obligations or any right of offset with respect thereto, and any
failure by the Investors, Agent or any Lender to pursue such other rights or
remedies or to collect any payments from the Borrower or any such other Person
or to realize upon any such collateral
<PAGE>

                                                                               5

security or guarantee or to exercise any such right of offset, or any release of
the Borrower or any such other Person or any such collateral security, guarantee
or right of offset, shall not relieve such Guarantor of any liability hereunder,
and shall not impair or affect the rights and remedies, whether express, implied
or available as a matter of law, of the Investors, the Agent and the Lenders
against such Guarantor. This Guarantee shall remain in full force and effect and
be binding in accordance with and to the extent of its terms upon such Guarantor
and the successors and assigns thereof, and shall inure to the benefit of the
Investors, the Lessor, the Agent and the Lenders, and their respective
successors, indorsees, transferees and assigns, until all the Guaranteed
Obligations and the obligations of such Guarantor under this Guarantee shall
have been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Guaranteed Obligations.

          7.   Reinstatement.  This Guarantee shall continue to be effective,
          ------------------
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Guaranteed Obligations is rescinded or must otherwise be
restored or returned by the Investors, Agent or any Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower or the
Guarantors, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Borrower or the
Guarantors or any substantial part of its property, or otherwise, all as though
such payments had not been made.

          8.   Payments.  The Guarantors hereby guarantee that payments
          -------------
hereunder will be paid to the Agent without set-off or counterclaim in Dollars
at the office of the Agent located at 270 Park Avenue, New York, New York 10017.

          9.   Representations, Warranties.  In order to induce the Lenders to
          --------------------------------
enter into the Credit Agreement and to make the Loans, the Investors to enter
into the Participation Agreement and make the Investor Contribution and the
Lessor to enter into the Lease, Holdings and HCC hereby jointly and severally
represent and warrant to the Beneficiaries as follows, all of which shall
survive the execution and delivery of this Guarantee and the Credit Agreement
and the making of the Loans:

          9.1  Financial Condition.  (a)  The unaudited pro forma consolidated
          ------------------------                      --- -----
balance sheet of HCC and its consolidated Subsidiaries as at June 30, 2000
(including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which
                                    -----------------------
have heretofore been furnished to each Lender, has been prepared giving effect
(as if such events had occurred on such date) to the consummation of the TIDES
issuance.  The Pro Forma Balance Sheet has been prepared based on the best
information available to Holdings and HCC as of the date of delivery thereof,
and presents fairly in all material respects on a pro forma basis the estimated
                                                  --- -----
financial position of HCC and its consolidated Subsidiaries as at June 30, 2000,
assuming that the events specified in the preceding sentence had actually
occurred at such date.

          (b)  The audited consolidated balance sheets of HCC as at December 31,
     1998 and December 31, 1999, and the related consolidated statements of
     income and of cash flows for the fiscal years ended on such dates, reported
     on by and accompanied by an unqualified report from PricewaterhouseCoopers
     LLP, present fairly in all material
<PAGE>

                                                                               6

     respects the consolidated financial condition of HCC as at such date, and
     the consolidated results of its operations and its consolidated cash flows
     for the respective fiscal years then ended. The unaudited consolidated
     balance sheet of HCC as at March 31, 2000 and June 30, 2000, and the
     related unaudited consolidated statements of income and cash flows for the
     three and six-month periods ended on such date, present fairly in all
     material respects the consolidated financial condition of HCC as at such
     date, and the consolidated results of its operations and its consolidated
     cash flows for the three and six-month periods then ended (subject to
     normal year-end audit adjustments). All such financial statements,
     including the related schedules and notes thereto, have been prepared in
     accordance with GAAP applied consistently throughout the periods involved
     (except as approved by the aforementioned firm of accountants and disclosed
     therein). Holdings, HCC and its Subsidiaries do not have any material
     Guarantee Obligations, contingent liabilities and liabilities for taxes, or
     any long-term leases or unusual forward or long-term commitments, including
     any interest rate or foreign currency swap or exchange transaction or other
     obligation in respect of derivatives, that are not reflected in the most
     recent financial statements referred to in this paragraph. During the
     period from June 30, 2000 to and including the date hereof there has been
     no Disposition by Holdings or any of its Subsidiairies, as applicable, of
     any material part of their business or property (other than to Holdings or
     any of its Subsiciaries).

          9.2  No Change.  Since June 30, 2000 (a) there has been no
          --------------
development or event nor any prospective development or event, which has had or
would reasonably be expected to have a Material Adverse Effect and (b) except as
disclosed on Schedule 9.2 to this Agreement, as of the date of this Agreement,
no dividends or other distributions have been declared, paid or made upon the
Capital Stock of Holdings or HCC nor has any of the Capital Stock of Holdings or
HCC (other than in connection with the Restructuring) been redeemed, retired,
purchased or otherwise acquired for value by Holdings or any of its respective
Subsidiaries.

          9.3  Corporate Existence; Compliance with Law.  Each Guarantor (a) is
          ---------------------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, except where the
failure to be so qualified would not reasonably be expected to have a Material
Adverse Effect, and (d) is in compliance with all Requirements of Law except to
the extent that the failure to comply therewith would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.

          9.4  Corporate Power; Authorization; Enforceable Obligations.  Each
          ------------------------------------------------------------
Guarantor has the corporate power and authority, and the legal right, to make,
deliver and perform the Operative Agreements to which it is a party.  HCC has
the corporate power and authority, and the legal right, to perform the Operative
Agreements and has taken all necessary corporate action to authorize the
performing under the Operative Agreements on the terms and conditions of the
Operative Agreements.  Each Guarantor has taken all necessary corporate
<PAGE>

                                                                               6

action to authorize the execution, delivery and performance of this Guarantee.
No consent or authorization of, filing with or other act by or in respect of,
any Governmental Authority or any other Person (other than consents that have
been obtained and consents or authorizations the failure to obtain would not, in
the aggregate, reasonably be expected to have a Material Adverse Effect) is
required in connection with the Loans or with the execution, delivery,
performance, validity or enforceability of this Guarantee or any of the other
Operative Agreements, except consents, authorizations, filings and notices
described in Schedule 9.4, which consents, authorizations, filings and notices
have been obtained or made and are in full force and effect. This Guarantee has
been duly executed and delivered on behalf of the Guarantors party hereto. This
Guarantee constitutes, each Operative Agreement when executed and delivered will
constitute, a legal, valid and binding obligation of the Guarantors party
thereto enforceable against such Guarantors in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

          9.5  No Legal Bar.  The execution, delivery and performance of this
          -----------------
Guarantee and the other Operative Agreements, the Loans and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of any Guarantor party thereto and will not result in, or require,
the creation or imposition of any Lien on any of their respective properties or
revenues pursuant to any such Requirement of Law or Contractual Obligation,
except as contemplated hereby or thereby and except to the extent any such
violation or creation or imposition of a Lien would not reasonably be expected
to have a Material Adverse Effect.

          9.6  No Material Litigation.  Except as set forth in HCC's Form 10-Q,
          ---------------------------
filed with respect to the period ending June 30, 2000, no litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of HCC, threatened by or against any
Guarantor or against any of their respective properties or revenues (a) with
respect to this Guarantee or the other Operative Agreements or any of the
transactions contemplated hereby, or (b) which would reasonably be expected to
have a Material Adverse Effect.

          9.7  No Default.  None of the Guarantors nor any of their respective
          ---------------
Subsidiaries is in default under or with respect to any of their respective
Contractual Obligations in any respect which if not cured would reasonably be
expected to have a Material Adverse Effect.  No Default or Event of Default has
occurred and is continuing.

          9.8  Ownership of Property; Liens; Leases of Equipment.  Each of the
          ------------------------------------------------------
Guarantors has good record and marketable title in fee simple (except for
exceptions to title as will not in the aggregate materially interfere with the
present or contemplated use of the property affected thereby) to, or a valid
leasehold interest in, all its real property, and good title to all its other
property, and none of such property is subject to any Lien except as permitted
by Section 11.3.  None of the Equipment or Inventory (as defined in the Uniform
Commercial Code) owned by any Guarantor has been leased by such Guarantor as
lessor, except pursuant to operating leases (which do not constitute Financing
Leases).  As used herein, Equipment or Inventory leased by a Guarantor under a
Financing Lease shall be deemed "owned" by such Guarantor.
<PAGE>

                                                                               8

          9.9  Intellectual Property.  Each Guarantor owns, or is licensed to
          --------------------------
use, all trademarks, tradenames, trade secrets, copyrights, technology, know-how
and processes necessary for the conduct of its business as currently conducted
except for those the failure to own or license which would not reasonably be
expected to have a Material Adverse Effect (the "Intellectual Property"). To
                                                 ---------------------
the knowledge of each Guarantor, no claim has been asserted and is pending by
any Person challenging or questioning the use of any such Intellectual Property
or the validity or effectiveness of any such Intellectual Property, nor does
each Guarantor know of any valid basis for any such claim, which would
reasonably be expected to have a Material Adverse Effect.  The use of such
Intellectual Property by the Guarantors does not infringe on the rights of any
Person, except for such claims and infringements that, in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.

          9.10 Taxes.  Each of the Guarantors has filed or caused to be filed
          ----------
all tax returns which, to the knowledge of each Guarantor, are required to be
filed and has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of any of the
Guarantors, as the case may be); no tax Lien has been filed against the property
of any Guarantor, and, to the knowledge of each Guarantor, no claim is being
asserted, with respect to any such tax, fee or other charge.

          9.11 Federal Regulations.  No part of the proceeds of any Loans will
          ------------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any purpose which violates the provisions of the Regulations of
such Board of Governors. If requested by any Lender or the Agent, HCC will
furnish to the Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U.

          9.12 ERISA.  Neither a Reportable Event nor an "accumulated funding
          ----------
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code.  No termination of a Single Employer Plan has occurred and no lien
in favor of the PBGC or a Plan has arisen during the five-year period prior to
the date as of which this representation is deemed made.  The present value of
all accrued benefits under each Single Employer Plan maintained by HCC, or any
Commonly Controlled Entity (based on those assumptions used to fund the Plans)
did not, as of the last annual valuation date prior to the date on which this
representation is made or deemed made, exceed the value of the assets of such
Plan allocable to such accrued benefits.  Neither HCC nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither HCC nor any Commonly Controlled Entity would
become subject to any liability under ERISA if HCC or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this
<PAGE>

                                                                               9

representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of HCC and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits.

          9.13 Investment Company Act; Other Regulations.  None of the
          ----------------------------------------------
Guarantors is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. None of the Guarantors is subject to regulation under any Federal or
State statute or regulation which limits its ability to incur Indebtedness or
change rates or change tariffs. None of the Guarantors are "holding companies"
or "subsidiary companies" of a "holding company" or a "subsidiary company" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.

          9.14 Subsidiaries.  As of the Initial Closing Date, Holdings has no
          -----------------
Subsidiaries other than as set forth on Schedule 9.14.  Except if a Guarantor,
                                        -------------
other than cash or Cash Equivalents located in bank accounts at the Agent, none
of the assets owned by any Unqualified Subsidiary as of the date hereof are
located within the United States of America or any territory thereof.

          9.15 Environmental Matters.  Each of the representations and
          --------------------------
warranties set forth in paragraphs (a) through (e) of this subsection is true
and correct with respect to each parcel of real property owned or operated by
any of the Guarantors (the "Properties"), except to the extent that the facts
                            ----------
and circumstances giving rise to any such failure to be so true and correct
would not reasonably be expected to have a Material Adverse Effect:

          (a)  Except as set forth on Schedule 9.15, the Properties do not
                                      -------------
     contain, and have not previously contained, in, on, or under, including,
     without limitation, the soil and groundwater thereunder, any Hazardous
     Substances in concentrations which violate Environmental Laws.

          (b)  Except as set forth on Schedule 9.15, the Properties and all
                                      -------------
     operations and facilities at the Properties are in compliance with all
     Environmental Laws, and there is no Hazardous Substances contamination or
     violation of any Environmental Law which would reasonably be expected to
     interfere with the continued operation of any of the Properties or impair
     the fair saleable value of any thereof.

          (c)  Except as set forth on Schedule 9.15, none of the Guarantors has
                                      -------------
     received any complaint, notice of violation, alleged violation,
     investigation or advisory action or of potential liability or of potential
     responsibility regarding environmental protection matters or environmental
     permit compliance with regard to the Properties which have not been
     resolved, nor is HCC aware that any Governmental Authority is contemplating
     delivering to any Guarantor any such notice.
<PAGE>

                                                                              10

          (d)  Hazardous Substances have not been generated, treated, stored,
     disposed of, at, on or under any of the Properties in concentrations that
     violate Environmental Laws, nor have any Hazardous Substances been
     transferred to any other location, in violation of any Environmental Laws
     from the Properties or as a result of the sale or lease of any equipment or
     inventory of any Guarantor.

          (e)  There are no governmental, administrative actions or judicial
     proceedings pending or contemplated under any Environmental Laws to which
     any Guarantor is or to HCC's knowledge will be named as a party with
     respect to the Properties, nor to HCC's knowledge are there any consent
     decrees or other decrees, consent orders, administrative orders or other
     orders, or other administrative or judicial requirements outstanding under
     any Environmental Law with respect to any of the Properties.

          9.16 Accuracy and Completeness of Information.  The factual statements
          ---------------------------------------------
contained in the Operative Agreements and each other agreement, instrument,
certificate and document related thereto and any other certificates or documents
furnished or to be furnished to the Investors, the Agent or the Lenders by any
Guarantor from time to time in connection with this Guarantee (in any case
excluding any of the financial statements referred to in Section 9.1(a) and 10.1
hereof), taken as a whole, and taking into consideration all corrections or
substituted documents, do not and will not, as of the date when made, contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading in
light of the circumstances in which the same were made, all except as otherwise
qualified herein or therein.

          9.17 Senior Indebtedness.  The Guaranteed Obligations constitute
          ------------------------
"Senior Indebtedness" of HCC under and as defined in the Shareholder
Subordinated Loan Agreement. The obligations of the Guarantors under the
Agreement constitute "Senior Indebtedness" of such applicable Guarantors under
and as defined in the Shareholder Subordinated Loan Agreement.

          9.18 Representations and Warranties in Equipment Guarantees.  The
          -----------------------------------------------------------
representations and warranties contained in Section 9 of the Equipment
Guarantees and in any amendment, consent or waiver thereto were true and correct
in all material respects on and as of the dates when made pursuant to the
Equipment Guarantees.

          10.  Affirmative Covenants of the Guarantor.  Each Guarantor hereby
          -------------------------------------------
covenants and agrees that so long as this Guarantee is in effect and until the
Commitments have terminated and the Guaranteed Obligations and all amounts owing
hereunder are paid in full such Guarantor will:

          10.1 Financial Statements.  Furnish to each Lender and each of the
          -------------------------
Investors:

          (a)  as soon as available for distribution to shareholders and
     creditors generally, but in any event within 120 days after the end of each
     fiscal year of Holdings, a copy of the consolidated balance sheet of
     Holdings and its consolidated Subsidiaries, as at the end of such year and
     the related consolidated statements of income and retained earnings and of
     cash flows for such year, setting forth in each case in comparative form
<PAGE>

                                                                              11

     the figures for the previous year, reported on without a "going concern" or
     like qualification or exception, or qualification arising out of the scope
     of the audit, by PricewaterhouseCoopers LLP or other independent certified
     public accountants of nationally recognized standing not unacceptable to
     the Required Lenders;

          (b)  as soon as available for distribution to shareholders and
     creditors generally, but in any event within 90 days after the end of each
     fiscal year of Holdings, a copy of the unaudited consolidated balance sheet
     of Holdings and its consolidated Subsidiaries, as at the end of such year,
     and the related unaudited consolidated statements of income and retained
     earnings and of cash flows for such year, in each case setting forth in
     comparative form the figures for the corresponding period of the previous
     year and the figures for such period as shown on the budgets of Holdings
     for such year; and

          (c)  as soon as available, but in any event not later than 45 days
     after the end of each of the first three quarterly periods of each fiscal
     year of Holdings, the unaudited consolidated balance sheet of Holdings and
     its consolidated Subsidiaries, as at the end of such quarter, and the
     related unaudited consolidated statements of income and retained earnings
     and of cash flows of Holdings and its consolidated Subsidiaries, for such
     quarter and the portion of the fiscal year through the end of such quarter,
     setting forth in each case in comparative form the figures for the
     corresponding period of the previous year, certified by a Responsible
     Officer as being fairly stated in all material respects when considered in
     relation to the consolidated financial statements of Holdings and its
     consolidated Subsidiaries, (subject to normal year-end audit adjustments),
     and in each case setting forth in comparative form the figures for such
     periods as shown on the budgets of such Person for such year;

all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).

          10.2 Certificates; Other Information.  Furnish to each Lender and
          ------------------------------------
each of the Investors:

          (a)  concurrently with the delivery of the financial statements
     referred to in subsection 10.1(a), a certificate of the independent
     certified public accountants reporting on such financial statements stating
     that in making the examination necessary therefor no knowledge was obtained
     of any Default or Event of Default, except as specified in such
     certificate;

          (b)  concurrently with the delivery of the financial statements
     referred to in subsections 10.1(a) and 10.1(c), a certificate of a
     Responsible Officer stating that, to the best of such Responsible Officer's
     knowledge, Holdings during such period has observed or performed all of its
     covenants and other agreements, and satisfied every material condition,
     contained in this Guarantee and the other Operative Agreements to which it
     is a party to be observed, performed or satisfied by it, and that such
     Responsible Officer has
<PAGE>

                                                                              12

     obtained no knowledge of any Default or Event of Default except as
     specified in such certificate, such certificate to include the original
     total dollar amount of any Equipment True Leases;

          (c) not later than 45 days following the end of each fiscal year of
     Holdings, a copy of the projections by Holdings of the operating budget and
     cash flow budget of Holdings and its Subsidiaries for the succeeding fiscal
     year, such projections to be accompanied by a certificate of a Responsible
     Officer to the effect that such projections have been prepared on the basis
     of reasonable assumptions and that such Officer has no reason to believe
     they are incorrect or misleading in any material respect;

          (d) (i) within five days after the same are sent, copies of all
     financial statements and reports which Holdings, if at such time any class
     of Holding's securities are held by the public, sends to its stockholders
     generally, or, if otherwise, such financial statements and reports as are
     made generally available to the public, and (ii) within five days after the
     same are filed, copies of all financial statements and reports which
     Holdings may make to, or file with, the Securities and Exchange Commission
     or any successor or analogous Governmental Authority;

          (e) concurrently with the delivery of the financial statements
     referred to in subsections 10.1(a) and (c), a management summary describing
     and analyzing the performance of Holdings and its Subsidiaries during the
     periods covered by such financial statements;

          (f) within 45 days after the end of each quarter in each fiscal year
     of Holdings, a certificate of the principal financial officer of Holdings
     showing both the Applicable Margin for the next quarter and the detailed
     computations necessary to calculate the Applicable Margin (an "Applicable
                                                                    ----------
     Margin Certificate"); and
     ------------------

          (g) promptly, such additional financial and other information as any
     Lender or either of the Investors may from time to time reasonably request.

          10.3   Payment of Obligations. Pay, discharge or otherwise satisfy at
          -----------------------------
or before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
Holdings or any Subsidiary of Holdings, as the case may be.

          10.4   Conduct of Business and Maintenance of Existence. Continue to
          -------------------------------------------------------
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business except as otherwise permitted
pursuant to Section 11.5; comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith would
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
<PAGE>

                                                                              13

          10.5   Maintenance of Property; Insurance. (a)  Keep and maintain all
          -----------------------------------------
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.

          10.6   Inspection of Property; Books and Records; Discussions. Keep
          -------------------------------------------------------------
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of either of the Investors or any Lender to visit and inspect
any of its properties and examine and make abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of Holdings and Subsidiaries of Holdings with officers and employees of Holdings
and Subsidiaries of Holdings and with its independent certified public
accountants; provided, however, that no such visit, inspection or examination or
             --------
discussion shall unreasonably disrupt or interfere with normal operations of
Holdings or any of its Subsidiaries and any such representatives of such
Investor, Agent and the Lenders shall be accompanied by a Responsible Officer of
Holdings. No failure to comply with any request for the exercise of rights
hereunder shall be cause for any Event of Default unless such request is
submitted in writing to Holdings with reference to this Section 10.6.

          10.7   Notices. Promptly give notice to the Investors, Agent and each
          --------------
Lender of:

          (a)    the occurrence of any Default or Event of Default of which any
     Guarantor has actual knowledge;

          (b)    any (i) default or event of default by any Guarantor or any of
     its Subsidiaries under or with respect to any of their respective
     Contractual Obligations in any respect which, if not cured, would
     reasonably be expected to have a Material Adverse Effect, or to Guarantor's
     knowledge any default or event of default by any third party under or with
     respect to any Contractual Obligation of said third party with any
     Guarantor or any of its Subsidiaries in a respect which, if not cured,
     would reasonably be expected to have a Material Adverse Effect or (ii)
     litigation, investigation or proceeding of which any Guarantor has actual
     knowledge which may exist at any time between any Guarantor or any
     Subsidiary of such Guarantor and any Governmental Authority, which in
     either case, if not cured or if adversely determined, as the case may be,
     would reasonably be expected to have a Material Adverse Effect;

          (c)    any litigation or proceeding affecting any Guarantor or any
     Subsidiary of such Guarantor of which such Guarantor has actual knowledge
     in which the amount involved is $5,000,000 or more and not covered by
     insurance or in which injunctive or similar relief is sought and which if
     adversely determined would reasonably be expected to have a Material
     Adverse Effect;

          (d)    the following events, as soon as possible and in any event
     within 30 days after any Guarantor has actual knowledge thereof: (i) the
     occurrence or expected
<PAGE>

                                                                              14

     occurrence of any Reportable Event with respect to any Plan, or any
     withdrawal from, or the termination, Reorganization or Insolvency of any
     Multiemployer Plan or (ii) the institution of proceedings or the taking of
     any other action by the PBGC or such Guarantor, any Commonly Controlled
     Entity with respect to the termination of any Single Employer Plan; and

          (e)    a development or event which has had or would reasonably be
     expected to have a Material Adverse Effect.

Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the applicable Guarantor proposes to take with respect
thereto.

          10.8   Environmental Laws.
                 -------------------

          (a)    Comply in all material respects with, and undertake all
     reasonable efforts to ensure compliance by all tenants and subtenants, if
     any, with, all Environmental Laws and obtain and comply in all material
     respects with and maintain, and undertake all reasonable efforts to ensure
     that all tenants and subtenants obtain and comply with and maintain, any
     and all licenses, approvals, registrations or permits required by
     Environmental Laws, and upon discovery of any non-compliance or suspected
     non-compliance, undertake all reasonable efforts to attain full compliance;

          (b)    Conduct and complete all investigations, studies, sampling and
     testing, and all remedial, removal and other actions required under
     Environmental Laws and promptly comply in all material respects with all
     lawful orders and directives of all Governmental Authorities respecting
     Environmental Laws, except to the extent that the failure to so conduct,
     complete or take such actions, or to comply with such orders and
     directives, would not in the aggregate reasonably be expected to have a
     Material Adverse Effect; and

          (c)    Defend, indemnify and hold harmless the Investors, the Lessor,
     the Agent and the Lenders, and their respective employees, agents, officers
     and directors, from and against any claims, demands, penalties, fines,
     liabilities, settlements, damages, costs and expenses of whatever kind or
     nature known or unknown, contingent or otherwise, arising out of, or in any
     way relating to the violation of or noncompliance with any Environmental
     Laws applicable to the real property owned or operated by any Guarantor or
     any Subsidiary of such Gurantor, or any orders, requirements or demands of
     Governmental Authorities related thereto, including, without limitation,
     reasonable attorney's and consultant's fees, investigation and laboratory
     fees, court costs and litigation expenses, except to the extent that any of
     the foregoing arise out of the gross negligence or willful misconduct of
     the party seeking indemnification therefor.

          (d)    Maintain a program to identify and promote substantial
     compliance with and to minimize prudently any liabilities or potential
     liabilities under any Environmental Law that may affect any Guarantor or
     any of its Qualified Subsidiaries.
<PAGE>

                                                                              15

          10.9   Subsequent Guarantees. Each Guarantor shall cause each
          ----------------------------
Qualified Subsidiary (other than the TIDES Trust, HMS, MAC and Collicut) of such
Guarantor for which the aggregate value of all assets owned by such Qualified
Subsidiary is or becomes greater than $20,000,000, to execute an amendment to
this Guarantee, substantially in the form of Exhibit A hereto within one-year
                                             ---------
after the later of (i) the date on which such Qualified Subsidiary becomes a
Subsidiary of such Guarantor and (ii) the date on which such Qualified
Subsidiary's assets attain an aggregate value in excess of $20,000,000;
provided, however, that if during such one-year period the aggregate value of
--------  -------
such Qualified Subsidiary's assets is or becomes $20,000,000 or less, such
Qualified Subsidiary shall not be required to become a party to this Guarantee.

          11.    Negative Covenants. Each Guarantor hereby agrees that so long
          -------------------------
as this Guarantee is in effect and until the Commitments have terminated and the
Guaranteed Obligations and all amounts owing hereunder are paid in full, the
Guarantor shall not, directly or indirectly:

          11.1    Financial Condition Covenants. (a) Maintenance of Consolidated
          -------------------------------------      ---------------------------
Indebtedness to Consolidated Capitalization. Permit the ratio (expressed as a
-------------------------------------------
percentage) of Consolidated Indebtedness to Consolidated Capitalization of
Holdings as at the end of any of Holdings' fiscal quarters to be greater than
 .65 to 1.0; provided that for purposes of calculating the numerator of the
            --------
foregoing ratio, Consolidated Indebtedness shall exclude seventy percent (70%)
of the Indebtedness in respect of the TIDES Debentures.

          (b)    Current Ratio. Permit the Current Ratio of Holdings at the end
                 -------------
     of any of Holdings' fiscal quarters to be less than 1.0 to 1.0.

          (c)    Consolidated Indebtedness to Consolidated Adjusted EBITDA.
                 ---------------------------------------------------------
     Permit the ratio of Consolidated Indebtedness of Holdings to Consolidated
     Adjusted EBITDA for the four consecutive fiscal quarters of Holdings most
     recently ended to be greater than 5.25 to 1.0; provided that for purposes
                                                    --------
     of calculating the numerator of the foregoing ratio, Consolidated
     Indebtedness of Holdings shall exclude seventy percent (70%) of the
     Indebtedness in respect of the TIDES Debentures.

          (d)    Consolidated Indebtedness to Consolidated EBITDA. Permit the
                 ------------------------------------------------
     ratio of Consolidated Indebtedness to Consolidated EBITDA of Holdings for
     the four consecutive fiscal quarters of Holdings most recently ended
     ("Consolidated Indebtedness Ratio") to be greater than 4.0 to 1.0; provided
       -------------------------------                                  --------
     that for purposes of calculating the numerator of the foregoing ratio,
     Consolidated Indebtedness of Holdings shall exclude seventy percent (70%)
     of the Indebtedness in respect of the TIDES Debentures.

          (e)    Interest Coverage Ratio. Permit the ratio of Consolidated
                 -----------------------
     EBITDA to Consolidated Interest Expense of Holdings for the period of four
     consecutive fiscal quarters of Holdings most recently ended to be less than
     2.5 to 1.0.; provided that for purposes of calculating the foregoing ratio,
                  --------
     Consolidated Interest Expense of Holdings shall exclude any accrued but
     unpaid interest to the TIDES or TIDES Debentures.
<PAGE>

                                                                              16

          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 Gurantors under the Corporate Credit Agreement and the other Loan
     Documents as defined in the Corporate Credit Agreement;

          (b)    Indebtedness of HCC to any of its Subsidiaries and of any such
     Subsidiary which is a Guarantor to HCC or any other Subsidiary of HCC;

          (c)    Indebtedness outstanding on the Initial Closing Date and listed
     on, Schedule 11.2 and all extensions, renewals, replacements, refinancings
         -------------
     and modifications thereof permitted hereunder;

          (d)    Indebtedness of Holdings and any of its Subsidiaries in an
     aggregate amount not to exceed $50,000,000 at any time outstanding which is
     recourse only to the assets of HCC or any Subsidiaries acquired or financed
     with the proceeds of such Indebtedness; provided, that immediately after
                                             --------
     giving effect to the incurrence of such Indebtedness, Holdings shall be in
     compliance, on a pro forma basis after giving effect to such Indebtedness,
                      --- -----
     with the covenants in subsection 11.1 recomputed as at the last day of the
     most recently ended fiscal quarter of Holdings as if such Indebtedness had
     been incurred on the first day of each relevant period for testing such
     compliance, and Holdings shall have delivered to the Agent an officers'
     certificate to such effect, together with all relevant financial
     information;

          (e)    Indebtedness in respect of Financing Leases provided that,
                                                             --------
     after giving effect thereto, subsection 11.7 is not contravened;

          (f)    Indebtedness in respect of Subordinated Debt, the terms and
     conditions of which have been approved in writing by the Required Lenders
     and Investors and all extensions, renewals, replacements, refinancings and
     modifications thereof permitted hereunder;

          (g)    Indebtedness of Unqualified Subsidiaries of Holdings; provided
     that any such Indebtedness is Non-Recourse Indebtedness;

          (h)    Indebtedness of a Person which becomes a Subsidiary after the
     date hereof in an aggregate principal amount not exceeding as to Holdings
     and its Subsidiaries $10,000,000 at any time outstanding, provided that (i)
                                                               --------
     such indebtedness existed at the time such Person became a Subsidiary and
     was not created in anticipation thereof and (ii) immediately after giving
     effect to the acquisition of such Person by Holdings or any of its
     Subsidiaries no Default or Event of Default shall have occurred and be
     continuing;

          (i)    Indebtedness in respect of Equipment Lease Tranche A Loans; and
<PAGE>

                                                                              17

          (j)    Indebtedness not contemplated by clauses (a)-(i) above not
     exceeding $20,000,000 in the aggregate at any time outstanding.

          11.3   Limitation on Liens. Create, incur, assume or suffer to exist
          --------------------------
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:

          (a)    Liens for taxes not yet due or which are being contested in
     good faith by appropriate proceedings, provided that adequate reserves with
                                            --------
     respect thereto are maintained on the books of Holdings or any Subsidiary
     of Holdings, as the case may be, in conformity with GAAP;

          (b)    carriers', warehousemen's, mechanics', materialmen's,
     repairmen's or other like Liens arising in the ordinary course of business
     which are not overdue for a period of more than 60 days or which are being
     contested in good faith by appropriate proceedings;

          (c)    pledges or deposits in connection with workers' compensation,
     unemployment insurance and other social security legislation and deposits
     securing liability to insurance carriers under insurance or self insurance
     arrangements;

          (d)    deposits to secure the performance of bids, trade contracts
     (other than for borrowed money), leases, statutory obligations, surety and
     appeal bonds, performance bonds and other obligations of a like nature
     incurred in the ordinary course of business;

          (e)    easements, rights-of-way, restrictions and other similar
     encumbrances incurred in the ordinary course of business which, in the
     aggregate, are not substantial in amount and which do not in any case
     materially detract from the value of the property subject thereto or
     materially interfere with the ordinary conduct of the business of Holdings
     or any of its Subsidiaries;

          (f)    leases or subleases granted to third Persons not interfering in
     any material respect with the business of Holdings or any of its
     Subsidiaries;

          (g)    Liens arising from UCC financing statements regarding leases
     permitted by this Agreement or the Equipment Leases;

          (h)    any interest or title of a lessor or sublessor under any lease
     permitted by the Corporate Credit Agreement or the Equipment Leases;

          (i)    Liens in favor of customs and revenue authorities arising as a
     matter of law to secure payment of custom duties in connection with the
     importation of goods so long as such Liens attach only to the imported
     goods;

          (j)    Liens arising out of consignment or similar arrangements for
     the sale of goods entered into by Holdings or any of its Subsidiaries in
     the ordinary course of business;
<PAGE>

                                                                              18

          (k)    Liens created pursuant to Financing Leases permitted pursuant
     to Section 11.2(e);

          (l)    Liens in existence on the Initial Closing Date listed on,
     Schedule 11.3(l), securing Indebtedness permitted by subsection 11.2(C),
     ---------------
     provided that no such Lien is spread to cover any additional property after
     --------
     the Initial Closing Date and that the amount of Indebtedness secured
     thereby is not increased;

          (m)    Liens on (i) natural gas compressors and related equipment, and
     usual accessories and improvements and proceeds thereof (other than the
     Equipment), and (ii) oil and gas production equipment, in each case, the
     acquisition of which were financed with the proceeds of the Indebtedness
     permitted by subsection 11.2(e) and which secures only such Indebtedness,
     provided that any such Lien is placed upon such natural gas compressor or
     --------
     related equipment or such oil and gas production equipment at the time of
     the acquisition of such natural gas compressors or related equipment or
     such oil and gas production equipment by Holdings or any of its
     Subsidiaries and the Lien extends to no other property, and provided,
                                                                 --------
     further, that no such Lien is spread to cover any additional property after
     -------
     the date such Lien attaches and that the amount of Indebtedness secured
     thereby is not increased;

          (n)    Liens on assets of the Guarantors listed on Schedule 11.3(n),
     provided that no such Lien is spread to cover any additional property after
     --------
     the Initial Closing Date and that the amount of Indebtedness secured
     thereby is not increased;

          (o)    Liens on the assets of Unqualified Subsidiaries of Holdings
     securing Indebtedness of such Unqualified Subsidiaries permitted under
     Section 11.2(g);

          (p)    Liens securing Derivatives entered into by Holdings and its
     Subsidiaries which are permitted hereunder;

          (q)    Liens securing Indebtedness of Holdings or any Subsidiary
     permitted under subsection 11.2(d) so long as such Liens attach only to the
     assets acquired or financed pursuant to such subsection;

          (r)    Liens on the property or assets of a Person which becomes a
     Subsidiary after the date hereof securing Indebtedness permitted by
     subsection 11.2(h), provided that (i) such Liens existed at the time such
                         --------
     Person became a Subsidiary and were not created in anticipation thereof,
     (ii) any such Lien is not spread to cover any property or assets of such
     Person after the time such Person becomes a Subsidiary, and (iii) the
     amount of Indebtedness secured thereby is not increased;

          (s)    Liens that arise in connection with the Equipment Lease
     Transactions;

          (t)    Liens listed on Schedule 11.3(t); and
                                 ----------------
<PAGE>

                                                                              19

          (u)    Liens not otherwise permitted in clauses (a)-(t) above securing
     Indebtedness not exceeding $2,500,000 in the aggregate.

          11.4   Limitation on Guarantee Obligations. Create, incur, assume or
                 -----------------------------------
suffer to exist any Guarantee Obligation except:

          (a)    the Corporate Guarantees and the Equipment Lease Guarantees;

          (b)    up to $5,000,000 in the aggregate of Guarantee Obligations of
     HCC or any of its Subsidiaries in connection with indebtedness incurred by
     customers of HCC or any of its Subsidiaries; provided, that the proceeds of
                                                  --------
     any such indebtedness shall be used by such customers to purchase natural
     gas compressors or oil and gas production equipment from HCC or any of its
     Subsidiaries;

          (c)    Guarantee Obligations (in respect of obligations not
     constituting Indebtedness) arising under agreements entered into by HCC or
     any of its Subsidiaries in the ordinary course of business;

          (d)    guarantees in respect of Indebtedness (other than Subordinated
     Debt) permitted under the Corporate Credit Agreement;

          (e)    Guarantee Obligations of Holdings and any of its Subsidiaries
     arising pursuant to the Equipment Lease Transactions;

          (f)    the Guarantee Obligations of HCC in the nature of a guarantee
     or indemnification for, in each case, performance obligations (and not
     Indebtedness) as contemplated by the HMS Transactions; and

          (g)    the Subordinated Guarantee Obligations of Holdings arising
     under the TIDES Guarantees.

          11.5   Limitations on Fundamental Changes. Enter into any merger,
          -----------------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:

          (a)    any Qualified Subsidiary may be merged or consolidated with or
     into any other Qualified Subsidiary; provided, that a Qualified Subsidiary
                                          --------
     shall be the continuing or surviving corporation;

          (b)    Holdings or any Qualified Subsidiary may be merged or
     consolidated with any other Person organized under a jurisdiction of the
     United States with assets held primarily in the United States; provided,
                                                                    --------
     that Holdings or such Qualified Subsidiary shall be the continuing or
     surviving corporation; the Agent is provided with written notice, and after
     giving effect thereto no Default or Event of Default would exist or
     reasonably be expected to be caused thereby;
<PAGE>

                                                                              20

          (c)    any Qualified Subsidiary may sell, lease, assign, transfer or
     otherwise dispose of any or all of its assets to Holdings or any Qualified
     Subsidiary;

          (d)    any Unqualified Subsidiary may be merged or consolidated with
     or into any other Person and/or may sell, lease, assign, transfer or
     otherwise dispose of any of its assets (upon voluntary liquidation or
     otherwise) to any other Person provided that, if merged or consolidated
                                    --------
     with or into a Qualified Subsidiary, the Qualified Subsidiary will remain
     as a "Qualified Subsidiary" after the merger;

          (e)    pursuant to the Equipment Lease Transactions;

          (f)    the TIDES Trust may wind up or dissolve itself (or suffer a
     liquidation or dissolution), or convey, assign, transfer or otherwise
     dispose of, all or substantially all of its property, business or a assets,
     as contemplated by the TIDES Declaration of Trust;

          (g)    any of the HMS Entities may wind up, dissolve (or suffer a
     liquidation or dissolution), or convey, assign, transfer or otherwise
     dispose of, all or substantially all of its property, business or assets;
     and

          (h)    HCC may merge with another Subsidiary of Holdings in connection
     with the Restructuring.

          11.6   Limitation on Sale or Lease of Assets. Convey, sell, lease,
          --------------------------------------------
assign, transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, except:

          (a)    obsolete or worn out property disposed of in the ordinary
     course of business, provided that the aggregate value of obsolete or worn
     out natural gas compressors and oil and gas production equipment disposed
     of in the ordinary course of business does not exceed $5,000,000 during any
     fiscal year of Holdings;

          (b)    the sale of inventory in the ordinary course of business,
     provided that if such inventory is comprised of natural gas compressors or
     oil and gas production equipment, such natural gas compressors or oil and
     gas production equipment were never part of the natural gas compressors or
     oil and gas production equipment leased or held for lease by HCC or any of
     its Subsidiaries;

          (c)    the lease or sublease by HCC or any of its Subsidiaries as
     lessor of natural gas compressors and oil and gas production equipment in
     the ordinary course of business under operating leases (which do not
     constitute Financing Leases);

          (d)    the sale or discount without recourse of defaulted accounts
     receivable arising in the ordinary course of business in connection with
     the compromise or collection thereof;

          (e)    as permitted by subsection 11.5;
<PAGE>

                                                                              21

          (f)    the sale of natural gas compressors and oil and gas production
     equipment, other than disposals and sales covered by clauses (a) and (b)
     above, provided that the fair market value of natural gas compressors and
            --------
     oil and gas production equipment sold during the term of this Agreement
     does not exceed ten percent of the aggregate fair market value of all
     natural gas compressors and oil and gas production equipment owned by HCC
     and its Qualified Subsidiaries; provided further that if the proceeds are
                                     -------- -------
     reinvested in natural gas compressors or oil and gas production equipment
     to be owned by HCC or its Qualified Subsidiaries within nine months after
     the sale of the assets which produced such proceeds, such proceeds shall
     not be included for purposes of this covenant;

          (g)    the lease by the Real Estate Subsidiary or any other Qualified
     Subsidiary as lessor of real estate properties to HCC or any Qualified
     Subsidiary of HCC for use by HCC or such Qualified Subsidiary as the site
     of its offices and facilities;

          (h)    the sale of natural gas compressors to the Lessor in connection
     with the Equipment Lease Transactions; and

          (i)    the lease of assets as listed on Schedule 11.6(i).

          11.7   Limitation on Leases. Permit Consolidated Lease Expense for any
          ---------------------------
fiscal year of Holdings to exceed $10,000,000, except to the extent any such
excess results from expenses relating to any Equipment True Leases.

          11.8   Limitation on Dividends. Declare or pay any dividend (other
          ------------------------------
than dividends payable solely in common stock of such Person) on, or make any
payment on account of, or set apart assets for a sinking or other analogous fund
for, the purchase, redemption, defeasance, retirement or other acquisition of,
any shares of any class of Capital Stock of such Person or any warrants or
options to purchase any such Stock, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of Holdings or any Subsidiary of
Holdings, except that if no Default or Event of Default exists or would
reasonably be expected to be caused thereby (i) Subsidiaries of Holdings may
declare and pay dividends to Holdings (to the extent necessary to pay interest
on, or redeem, the TIDES Debentures or to cover operating expenses of Holdings)
and other shareholders of such Subsidiaries and the TIDES Trust may redeem the
TIDES as contemplated by the TIDES Declaration of Trust, (ii) Holdings may
repurchase or redeem shares of Holdings common stock from its employees and
former employees so long as the aggregate amount of all such repurchases since
the Closing Date does not exceed $7,500,000, (iii) Holdings may make open market
repurchases of shares of Holdings common stock so long as the aggregate amount
of all such repurchases since the Closing Date does not exceed $25,000,000, (iv)
Holdings may declare or pay dividends on and make mandatory stock repurchases
(pursuant to the terms of the applicable certificate of designation) of its
preferred stock, if any, (v) Holdings may declare or pay dividends on shares of
Holdings common stock, provided that the aggregate amount of such declarations
                       --------
or payments pursuant to this clause (v) above does not exceed 25% of the
Consolidated Net Income of Holdings for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
<PAGE>

                                                                              22

Closing Date to the end of Holdings' most recently ended fiscal quarter for
which financial statements have been delivered to the Agent and the Lenders
pursuant to subsection 10.1 at or prior to the time of such declaration or
payment and (vi) HCC may declare and pay dividends or make distributions to
Holdings to the extent necessary to allow Holdings to make payments on its
promissory notes to be issued in favor of the sellers of the KCC Group Limited
so long as (A) the aggregate amount of such declarations, payments or
distributions pursuant to this clause (vi) does not exceed (Pounds)6,000,000
(UK) plus accrued interest thereon and (B) no such dividend may be paid more
than three Business Days prior to the date the equivalent payment is made on
such notes.

          11.9   Limitation on Derivatives. Enter into or assume any obligations
          --------------------------------
with respect to any Derivatives except for Derivatives used by Holdings or any
of its Subsidiaries in reducing the interest rate risk exposure or foreign
currency risk exposure of Holdings and its Subsidiaries which have been provided
by a lender under the Corporate Credit Agreement or the Equipment Lease
Transactions; provided, that the aggregate notional amounts of such Derivatives
              --------
shall not exceed the aggregate amount of loans outstanding under the Corporate
Credit Agreement and the Equipment Lease Transactions.

          11.10  Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in (all of the
foregoing being herein collectively referred to as "Investments"), any Person,
                                                    -----------
except:

          (a)    extensions of trade credit in the ordinary course of business;

          (b)    Investments in Cash Equivalents;

          (c)    loans and advances to employees of such Person or its
     Subsidiaries for travel, entertainment and relocation expenses in the
     ordinary course of business in an aggregate amount for Holdings and its
     Subsidiaries not to exceed $250,000 at any one time outstanding;

          (d)    Investments by Holdings in its Subsidiaries which are or become
     Guarantors and investments by such Subsidiaries which are or become
     Guarantors in Holdings and in other Subsidiaries of Holdings which are or
     become Guarantors;

          (e)    Investments by Holdings in the Real Estate Subsidiary in an
     aggregate amount not to exceed $5,000,000 plus amounts necessary to
     maintain and operate the real property and improvements thereon owned by
     the Real Estate Subsidiary;

          (f)    Investments in Unqualified Subsidiaries of Holdings not to
     exceed $20,000,000 in the aggregate;

          (g)    Investments constituting Permitted Business Acquisitions so
     long as, after giving effect to the consummation of the transactions
     contemplated by each Permitted
<PAGE>

                                                                              23

     Business Acquisition, the Loans to be made and the Letters of Credit to be
     issued under the Corporate Credit Agreement and the loans to be made under
     the Equipment Lease Credit Agreements in connection therewith, the sum of
     (i) the cash and Cash Equivalents then held by Holdings, (ii) the Available
     Commitments of all the Lenders under the Corporate Credit Agreement, and
     (iii) the Available Commitments and Available Investor Commitments under
     the Equipment Lease Participation Agreements at such time, equals at least
     $20,000,000;

          (h)  Investments or acquisitions by Holdings or its Subsidiaries in
     (i) up to 50% of the shares of capital stock, partnership interests, joint
     venture interests, limited liability company interests or other similar
     equity interests in, a Person (other than a Subsidiary), or (ii) loans or
     advances to a Person (other than a Subsidiary), provided that the aggregate
                                                     --------
     amount of all such loans, advances, investments or acquisitions does not
     exceed $25,000,000 in any fiscal year;

          (i)  Loans to employees, officers and directors of Holdings and its
     Subsidiaries to acquire shares of capital stock of Holdings not to exceed
     $20,000,000; and

          (j)  the purchase by the TIDES Trust of the TIDES Debentures, as
     contemplated under the TIDES Declaration of Trust.

          11.11  Limitation on Optional Payments and Modifications of Debt
          ----------------------------------------------------------------
Instruments. (i) Make any optional payment or prepayment on or redemption,
-----------
purchase or defeasance of any portion of the Shareholder Subordinated Debt, (ii)
make any optional payment or prepayment in excess of $10,000,000 during any
calendar year on or redemption of any Indebtedness other than (a) redemptions of
any portion of the TIDES Debentures pursuant to the TIDES Indenture or
redemptions of any portion of the TIDES pursuant to the TIDES Declaration of
Trust or (b) any optional payment, prepayment or redemption of any Indebtedness
pursuant to the Corporate Credit Agreement, the Equipment Lease Credit
Agreements or (iii) amend, modify or change, or consent or agree to any
amendment, modification or change to any of the terms of any Indebtedness other
than (a) any Indebtedness pursuant to the Corporate Credit Agreement, the
Equipment Lease Credit Agreements or (b) any amendment, modification or change
which would extend the maturity or reduce the amount of any payment of principal
thereof or which would reduce the rate or extend the date for payment of
interest thereon, or any amendment or waiver which would render the terms of
such Indebtedness less restrictive.

          11.12  Transactions with Affiliates. Except for transactions of a
          -----------------------------------
type set forth on Schedule 11.12, enter into any transaction, including, without
                  --------------
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Affiliate unless such transaction is otherwise
permitted under this Agreement, is in the ordinary course of Holdings' or such
Subsidiary's business and is upon fair and reasonable terms no less favorable to
Holdings or such Subsidiary, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person not an Affiliate.
<PAGE>

                                                                              24

          11.13  Sale and Leaseback. Except for the transactions of a type set
          -------------------------
forth on Schedule 11.13, enter into any arrangement with any Person where
Holdings or any of the Subsidiaries of Holdings is the lessee of real or
personal property which has been or is to be sold or transferred by Holdings or
such Subsidiary to such Person or to any other Person to whom funds have been or
are to be advanced by such Person on the security of such property or rental
obligations of Holdings or such Subsidiary (any of such arrangements, a "Sale
                                                                         ----
and Leaseback Transaction"), except that (i) HCC and its Subsidiaries may enter
-------------------------
into Financing Leases as lessee for natural gas compressors and oil and gas
production equipment if after giving effect thereto subsection 11.2 is not
contravened and (ii) HCC may enter into Sale and Leaseback Transactions as
lessee for natural gas compressors in connection with the Equipment Lease
Transactions.

          11.14  Corporate Documents. Amend its Certificate of Incorporation in
          --------------------------
any way adverse to the interests of the Agent and the Lenders.

          11.15  Fiscal Year. Permit the fiscal year of Holdings to end on a day
          ------------------
other than December 31.

          11.16  Nature of Business. Engage in any business other than (a) the
          -------------------------
leasing, maintenance, purchase, sale and operation of natural gas compressor
units and oil and gas production equipment, (b) the design, engineering and
fabrication of natural gas compressor units, (c) the design, engineering and
fabrication of oil and gas production equipment, (d) the provision of contract
compression and related services, (e) the provision of gas metering services as
contemplated under the HMS Transactions, and (f) any activities related thereto
which are consistent with past practice and conducted in the ordinary course of
business.

          11.17  Unqualified Subsidiaries. Permit any Unqualified Subsidiary to
          -------------------------------
directly or indirectly own any assets (other than cash or Cash Equivalents
located in bank accounts at Chase) which are located in the United States of
America or any territory thereof.

          12.    Miscellaneous.
                 -------------

          12.1   Notices. All notices, requests and demands to or upon the
                 -------
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) when delivered by hand, (b) one
Business Day after delivery to a nationally recognized courier service
specifying overnight delivery, (c) three Business Days after being deposited in
the mail, certified or registered, postage prepaid, or (d) in the case of
facsimile notice, when sent and receipt has been confirmed, addressed as
follows:

          (a)    if to the Agent or any Lender, at its address or transmission
     number for notices provided in Section 9.2 of the Credit Agreement; and

          (b)    if to any Guarantor, at its address or transmission number for
     notices set forth on the signature page below.
<PAGE>

                                                                              25

          (c)    if to the Investors, at their address or transmission number
     for notices provided in Section 13.3 of the Participation Agreement.

The Investors, Agent, each Lender and each Guarantor may change its address and
transmission numbers for notices by notice in the manner provided in this
Section 12.

          12.2   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.

          12.3   Integration. This Guarantee and the other Operative Agreements
          ------------------
represents the agreement of the Guarantors with respect to the subject matter
hereof and there are no promises or representations by the Investors, Agent, any
Lender or any Guarantor relative to the subject matter hereof not reflected
herein or in the other Operative Agreements.

          12.4   Amendments in Writing; No Waiver; Cumulative Remedies (a) None
          ------------------------------------------------------------
of the terms or provisions of this Guarantee may be waived, amended,
supplemented or otherwise modified except as provided in Section 9.1 of the
Credit Agreement.

          (b)    Neither the Investors, Agent nor any Lender shall not by any
     act (except by a written instrument pursuant to Section 15(a) hereof),
     delay, indulgence, omission or otherwise be deemed to have waived any right
     or remedy hereunder or to have acquiesced in any Default or Event of
     Default or in any breach of any of the terms and conditions hereof. No
     failure to exercise, nor any delay in exercising, on the part of the
     Investors, Agent or any Lender, any right, power or privilege hereunder
     shall operate as a waiver thereof. No single or partial exercise of any
     right, power or privilege hereunder shall preclude any other or further
     exercise thereof or the exercise of any other right, power or privilege. A
     waiver by both Investors, Agent or any Lender of any right or remedy
     hereunder on any one occasion shall not be construed as a bar to any right
     or remedy which the Investors, Agent or such Lender would otherwise have on
     any future occasion.

          (c)    The rights and remedies herein provided are cumulative, may be
     exercised singly or concurrently and are not exclusive of any other rights
     or remedies provided by law.

          12.5   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.

          12.6   Successors and Assigns. This Guarantee shall be binding upon
          -----------------------------
the successors and assigns of the Guarantors and shall inure to the benefit of
the Investors, Agent and the Lenders and their successors and assigns.
<PAGE>

                                                                              26

          12.7   SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH GUARANTOR HEREBY
          ------------------------------------------
IRREVOCABLY AND UNCONDITIONALLY:

          (b)    SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
     PROCEEDING RELATING TO THIS GUARANTEE AND THE OTHER OPERATIVE AGREEMENTS TO
     WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGEMENT IN
     RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
     THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
     SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

          (c)    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;

          (d)    AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
     MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
     (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO SUCH
     PERSON AT ITS ADDRESS SET FORTH IN SECTION 12 OR AT SUCH OTHER ADDRESS OF
     WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;

          (e)    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

          (f)    WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
     IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED
     TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT OR
     CONSEQUENTIAL DAMAGES.

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

          12.9   Survival of Representations, Warranties, etc. All
          ---------------------------------------------------
representations, warranties, covenants and agreements made herein and in
statements or certificates delivered pursuant hereto shall survive any
investigation or inspection made by or on behalf of the Lessor and shall
continue in full force and effect until all of the obligations of the Guarantors
under this Guaranty shall be fully performed in accordance with the terms
hereof, and until the payment in
<PAGE>

                                                                              27

full of all the Guaranteed Obligations, and until performance in full of all
obligations of HCC in accordance with the terms and provisions of such
agreements.

          12.10  Authority of Agent. Each Guarantor acknowledges that the rights
          -------------------------
and responsibilities of the Agent under this Guarantee with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Guarantee shall, as between the Investors,
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and each Guarantor, the Agent shall be conclusively
presumed to be acting as agent for the Lenders with full and valid authority so
to act or refrain from acting, and no Guarantor shall be under any obligation,
or entitlement, to make any inquiry respecting such authority.

          12.11  Third Party Beneficiaries. Each Guarantor expressly
          --------------------------------
acknowledges and agrees that each Indemnified Person shall be a third party
beneficiary of this Guarantee.

          12.12  Right of Contribution. Each Guarantor hereby agrees that to the
          ----------------------------
extent that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder who has not paid its
proportionate share of such payment.  Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 4 hereof.  The
provisions of this Section shall in no respect limit the obligations and
liabilities of any Guarantor to Beneficiaries and each Guarantor shall remain
liable to the Beneficiaries for the full amount guaranteed by such Guarantor
hereunder.

          12.13  WAIVER OF JURY TRIAL. THE GUARANTORS EACH HEREBY IRREVOCABLY
          ---------------------------
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTY AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>

          IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.

                                    HANOVER COMPRESSOR COMPANY

                                    By:  ______________________________
                                         Name:
                                         Title:

                                    HANOVER COMPRESSION INC.

                                    By:  ______________________________
                                         Name:
                                         Title:
<PAGE>

                                             HANOVER COMPRESSOR LIMITED
                                             HOLDINGS, LLC

                                             by Hanover General Holdings, Inc.,
                                             as sole member

                                             By:  ______________________________
                                                  Name:
                                                  Title:
<PAGE>

                                             HANOVER MAINTECH LIMITED
                                             PARTNERSHIP

                                             by Hanover General Holdings, Inc.,
                                             As general partner

                                             By:  ______________________________
                                                  Name:
                                                  Title:
<PAGE>

                                             HANOVER/SMITH LIMITED
                                             PARTNERSHIP

                                             by Hanover General Holdings, Inc.,
                                             as general partner

                                             By:  ______________________________
                                                  Name:
                                                  Title:
<PAGE>

                                             HANOVER LAND LIMITED
                                             PARTNERSHIP

                                             by Hanover General Holdings, Inc.,
                                             general partner

                                             By:  ______________________________
                                                  Name:
                                                  Title:
<PAGE>

Address for Notices for all Guarantors:

12001 North Houston Rosslyn
Houston, Texas 77806
Attention: Chief Financial Officer
Telecopy:  281-477-0821

with a copy to:

Latham & Watkins
Sears Tower, Suite 5800
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Richard S. Meller and Michael A. Pucker
Telecopy:  312-993-9767

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