Formation Agreement - Dated 2/2/1999

FORMATION AGREEMENT


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Formation Agreement


By and Among


Weatherford International, Inc.
a Delaware corporation,


Weatherford Enterra Compression Company, L.P.,
a Delaware limited partnership,


General Electric Capital Corporation,
a New York corporation, and


Global Compression Services, Inc.,
a Delaware Corporation


Dated as of February 2, 1999


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TABLE OF CONTENTS
-----------------
Page ARTICLE I


DEFINITIONS..........................................................................................1
Section 1.1. Definitions..................................................................1


ARTICLE II


FORMATION AND CONTRIBUTION; CLOSING..................................................................1
Section 2.1. Formation and Contribution...................................................1
Section 2.2. Closing.....................................................................11
Section 2.3. Audit and Adjustment........................................................11
Section 2.4. Financing for the Partnership...............................................12


ARTICLE III


REPRESENTATIONS AND WARRANTIES......................................................................12
Section 3.1. Representations and Warranties of Weatherford and WECC......................12
Section 3.2. Representations and Warranties of GE Capital and Global.....................23


ARTICLE IV


CERTAIN COVENANTS...................................................................................34
Section 4.1. Conduct of Weatherford Compression Business.................................34
Section 4.2. Conduct of Global Compression Business......................................36
Section 4.3. Certain Other Covenants.....................................................37
Section 4.4. Curing Adverse Environmental Conditions.....................................40


ARTICLE V


CONDITIONS..........................................................................................40
Section 5.1. Conditions Precedent to Each Party's Obligations............................40
Section 5.2. Conditions Precedent to Obligations of Weatherford and the other
Weatherford Entities........................................................41
Section 5.3. Conditions Precedent to Obligations of GE Capital and the other
GE Entities.................................................................43


ARTICLE VI


TERMINATION; AMENDMENT; WAIVER......................................................................45
Section 6.1. Termination.................................................................45
Section 6.2. Amendment...................................................................46


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Section 6.3. Procedure for Termination, Amendment, Extension or Waiver
.......................................................................................46


ARTICLE VII


TAX MATTERS.........................................................................................46
Section 7.1. Certain Tax Matters.........................................................46


ARTICLE VIII


INDEMNIFICATION.....................................................................................50
Section 8.1. Survival of Certain Representations and Warranties..........................50
Section 8.2. Indemnification by Weatherford and WECC.....................................50
Section 8.3. Indemnification by GE Capital and Global....................................52


ARTICLE IX


MISCELLANEOUS.......................................................................................53
Section 9.1. Expenses....................................................................53
Section 9.2. Dispute Resolution and Arbitration..........................................54
Section 9.3. Notice......................................................................56
Section 9.4. Assignment..................................................................56
Section 9.5. Successors Bound............................................................56
Section 9.6. Governing Law...............................................................56


ANNEX


Annex I Glossary of Terms


EXHIBITS


Exhibit A Certificate of Formation
Exhibit B Certificate of Limited Partnership
Exhibit C LLC Agreement
Exhibit D LP Agreement
Exhibit E Registration Rights Agreement
Exhibit F Unanimous Consent of Directors
Exhibit G [Reserved]
Exhibit H Shared Services Agreement
Exhibit I Transition Agreement
Exhibit J Assignment, Conveyance and Assumption Documents


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SCHEDULES


Schedule 2.1(c)(2)(A) - Included Weatherford Assets
Schedule 2.1(c)(2)(B) - Excluded Weatherford Assets
Schedule 2.1(c)(2)(i) - Weatherford Real Property Interests
Schedule 2.1(c)(2)(ii) - Weatherford Contracts
Schedule 2.1(c)(2)(iii) - Weatherford Other Property Interests
Schedule 2.1(c)(2)(vi) - Weatherford Business Records
Schedule 2.1(c)(2)(vii) - Weatherford Miscellaneous Assets
Schedule 2.1(c)(2)(ix) - Weatherford Licenses
Schedule 2.1(c)(2)(x) - Weatherford Intellectual Property
Schedule 2.1(c)(2)(xii) - Weatherford Bank Accounts
Schedule 2.1(c)(3) - "Twelve-Step" Transfer
Schedule 2.1(d)(2)(A) - Excluded Global Assets
Schedule 2.1(d)(2)(i) - Global Real Property Interests
Schedule 2.1(d)(2)(ii) - Global Contracts
Schedule 2.1(d)(2)(iii) - Global Other Property Interests
Schedule 2.1(d)(2)(vi) - Global Business Records
Schedule 2.1(d)(2)(vii) - Global Miscellaneous Assets
Schedule 2.1(d)(2)(ix) - Global Licenses
Schedule 2.1(d)(2)(x) - Global Intellectual Property
Schedule 2.1(d)(2)(xii) - Global Bank Accounts
Schedule 2.3 - Calculation of Net Assets
Schedule 3.1(a) - Weatherford Foreign Qualifications
Schedule 3.1(b) - Weatherford Financial Statements
Schedule 3.1(f) - Weatherford Business Exceptions
Schedule 3.1(h) - Weatherford Litigation
Schedule 3.1(i) - Weatherford Employee Benefit Matters
Schedule 3.1(j) - Weatherford Tax Matters
Schedule 3.1(l) - Weatherford Environmental Matters
Schedule 3.1(n) - Weatherford Material Contracts and Agreements
Schedule 3.1(o) - Weatherford Property Encumbrances
Schedule 3.1(q) - Weatherford Labor Matters
Schedule 3.1(r) - Weatherford Insurance Policies
Schedule 3.1(s) - Weatherford Undisclosed Liabilities
Schedule 3.1(t) - Weatherford Year 2000 Compliance
Schedule 3.2(a) - Global Foreign Qualifications
Schedule 3.2(b) - Global Financial Statements
Schedule 3.2(f) - Global Business Exceptions
Schedule 3.2(h) - Global Litigation
Schedule 3.2(i) - Global Employee Benefit Matters
Schedule 3.2(j) - Global Tax Matters
Schedule 3.2(l) - Global Environmental Matters
Schedule 3.2(n) - Global Material Contracts and Agreements
Schedule 3.2(o) - Global Property Encumbrances
Schedule 3.2(r) - Global Insurance Policies


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Schedule 3.2(s) - Global Undisclosed Liabilities
Schedule 3.2(t) - Global Year 2000 Compliance
Schedule 4.1(a)(iv) - Weatherford Acquisition Transactions
Schedule 4.2(a)(iv) - Global Acquisition Transactions
Schedule 4.2(a)(viii) - Global Contemplated Transactions


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FORMATION AGREEMENT


This Formation Agreement dated as of February 2, 1999 ("Formation Agreement"), by and among (i) Weatherford International, Inc., a Delaware corporation ("Weatherford"), and Weatherford Enterra Compression Company, L.P., a Delaware limited partnership ("WECC", and, collectively with Weatherford, the "Weatherford Entities"), on the one hand, and (ii) General Electric Capital Corporation, a New York corporation ("GE Capital"), and Global Compression Services, Inc., a Delaware corporation ("Global," and, collectively with GE Capital, the "GE Entities"), on the other hand.


R E C I T A L S


WHEREAS, the Weatherford Entities and the GE Entities desire to form a Delaware limited partnership (the "Partnership") and a Delaware limited liability company to act as the sole general partner thereof, which Partnership will issue interests therein in exchange for contributions and transfers by WECC and by the Transferring Weatherford Entities and Global and GE Capital (Thailand) of certain of their respective gas compression assets, in each case pursuant to and in accordance with the terms and conditions hereof;


NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Weatherford Entities and the GE Entities hereby covenant and agree as follows:


ARTICLE I


DEFINITIONS


Section 1.1. Definitions. All capitalized or other defined terms used but not defined in this Formation Agreement are used in this Formation Agreement with the meanings assigned thereto in Annex I to this Formation Agreement.


ARTICLE II


FORMATION AND CONTRIBUTION; CLOSING


Section 2.1. Formation and Contribution. Subject to the terms and conditions of this Formation Agreement, (i) WECC and Global shall form Limited, (ii) Limited, WECC and Global shall form the Partnership, (iii) WECC and Global shall contribute or transfer their respective gas compression assets to the Partnership in exchange for Partnership Interests and agree to make certain cash payments to fund the purchase of certain of the assets of the Transferring Weatherford Entities and GE Capital (Thailand) and Global's Canadian Assets, (iv) Weatherford shall cause the Transferring Weatherford Entities and GE Capital shall cause GE Capital (Thailand) to transfer certain of their assets to the Partnership as provided in this Article II, and (v) the other transactions contemplated by this Formation Agreement shall be effected as follows:


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(a) Certain Filings. On or before the Closing Date, the following organizational documents shall be filed:


(1) Certification of Formation. WECC and Global shall file the Certificate of Formation with the Secretary of State of Delaware.


(2) Certificate of Limited Partnership. Limited, WECC and Global shall file the Certificate of Limited Partnership with the Secretary of State of Delaware.


(b) Execution and Delivery of Certain Agreements. On the Closing Date, the following agreements and documents shall be executed and delivered:


(1) LLC Agreement. WECC and Global shall execute and deliver the LLC Agreement.


(2) LP Agreement. Limited, WECC and Global shall execute and deliver the LP Agreement and Weatherford shall execute and deliver the LP Agreement solely to evidence its joint and several liability with WECC for the obligations of WECC under Section 11.2 thereof.


(3) Registration Rights Agreement. WECC, Global and the Partnership shall execute and deliver the Registration Rights Agreement.


(4) Unanimous Consent of Directors of General Partner. All members of the Board of Directors of Limited shall execute and deliver the Unanimous Consent of Directors.


(5) Shared Services Agreement. Weatherford and the Partnership shall execute and deliver the Shared Services Agreement.


(6) Transition Services Agreement. GE Capital, Global and the Partnership shall execute and deliver the Transition Services Agreement.


(7) Employee Lease Agreement. GE Capital, Global and the Partnership shall execute and deliver the Employee Lease Agreement.


(8) License Agreement. The Partnership, Weatherford Holding U.S., Inc. and Weatherford/Lamb, Inc. shall execute and deliver the License (and Weatherford shall cause each of Weatherford Holding U.S., Inc. and Weatherford/Lamb, Inc. to so execute and deliver the License Agreement.


(9) Master Lease Assignment. WECC and the Partnership and the Agents and Lessors named therein will execute and deliver the Assignment and Assumption and First Amendment to Participation Agreement, Master Lease Intended as Security and Schedule X dated February 2, 1999 (the "Master Lease Assignment"), among the Partnership and the Parties thereto.


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(c) Contribution and Transfer by WECC and the other Transferring Weatherford Entities of the Weatherford Compression Business.


(1) Weatherford shall contribute funds to WECC and cause WECC to fulfill its obligations under this Section 2.1(c).


(2) Partnership Contribution Transactions. On the Closing Date, in exchange for sixty three and 36/100 percent (63.36%) of the Partnership Interests in the Partnership, WECC shall contribute to the Partnership, by assigning, transferring, conveying and delivering to the Partnership, and the Partnership shall accept as a contribution therefrom, pursuant to the Weatherford/Partnership Assignment and Conveyance Agreement and other instruments of assignment and conveyance as contemplated by the Weatherford/Partnership Assignment and Conveyance Agreement in form or forms attached as Exhibit J, an undivided ninety-nine percent (99%) of (i) all assets, properties, rights, titles, interests, contracts of every kind, character and description, claims and estates of whatever nature, wherever located, however evidenced, whether recorded or unrecorded, real, personal or mixed, movable or immovable, tangible or intangible, Owned by WECC that are Used in connection with the Weatherford Compression Business (the "Closing Weatherford Assets") and (ii) its obligation under Section 2.1(c)(4) of this Formation Agreement to contribute cash to the Partnership in an amount equal to the amount the Partnership needs to acquire, as described in Section 2.1(c)(4), the assets of the nature described in clauses (i) through (xiii) below to the extent that such assets are Owned and Used by the other Transferring Weatherford Entities and such assets are either scheduled as an Additional Weatherford Assets on Schedule 2.1(c)(2)(A) or are dedicated exclusively to the compression businesses of such entities, in each case, subject to the exclusions described therein (the "Additional Weatherford Assets") and all of the Transferring Weatherford Entities' rights, titles and interests therein, including without limitation all assets reflected on the Balance Sheet at December 31, 1998, as the same may exist on the Closing Date (the Closing Weatherford Assets and the Additional Weatherford Assets (or, prior to the transfer of the Additional Weatherford Assets to the Partnership by the Transferring Weatherford Entities, WECC's obligation hereunder to contribute cash therefor) being hereinafter referred to collectively as the "Included Weatherford Assets"), the Included Weatherford Assets include the assets shown on Schedule 2.1(c)(2)(A) and further including without limitation, the following:


(i) All gas compression facilities and interests therein (including without limitation all leases, subleases, fee estates, joint operations and leaseholds related thereto), and other real property and real property interests Used in connection with the Weatherford Compression Business, including without limitation the properties listed on and referred to in Schedule 2.1(c)(2)(i) to this Formation Agreement, and rights to acquire any of the foregoing;


(ii) All rights in, to and under or derived from all Contracts, which are attributable to or are arising from or are Used, in connection with the Weatherford Compression Business or the Included Weatherford Assets, including without limitation all such Contracts for the compression of natural gas, partnership agreements, Contracts that relate to the Weatherford Compression Business, the Included Weatherford Assets or any of the properties and interests described or referred to in Section 2.1(c)(2)(i) of this Formation Agreement and any other Contracts and all rights to receive payment for products sold and/or services rendered and all rights


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to receive goods and services purchased pursuant to such Contracts and to assert claims and take other actions in respect of breaches, defaults or other violations thereof and otherwise (all of which Contracts and rights are listed and referred to in Schedule 2.1(c)(2)(ii) to this Formation Agreement);


(iii) All fixtures, personal property, improvements, easements, permits, licenses, servitudes, rights-of-way, surface leases and other surface, subsurface, air and water rights Used in connection with the Weatherford Compression Business including computer hardware that is Owned by a Transferring Weatherford Entity that is Used by persons who are offered employment by the Partnership and any boilers, buildings, compression facilities, construction and construction in progress, machinery, equipment, furniture, furnishings, automobiles, trucks and rolling stock, tools, power lines, telephone and telegraph lines, roads, and other appurtenances, easements, facilities and similar property, Used in connection with the Weatherford Compression Business or the operation or maintenance of the properties and interests described in Section 2.1(c)(2)(i) of this Formation Agreement, including without limitation such assets listed on Schedule 2.1(c)(2)(iii) to this Formation Agreement;


(iv) All current and long-term notes receivable, accounts receivables and all bonds and other evidences of indebtedness of, and rights to receive payments, from any Person, in each case attributable to or arising solely from the Weatherford Compression Business or the Included Weatherford Assets (other than intercompany funded debt), and all security interests of WECC in respect of such notes, accounts, bonds, evidences of indebtedness and other rights;


(v) All inventories of materials (including without limitation natural gas), raw materials, work in process, finished products, spare parts, replacement and component parts, and office and other supplies Used in connection with the Included Weatherford Assets or the Weatherford Compression Business;


(vi) All contract files, gas processing files, division order files, abstracts, title policies, binders or opinions, product design data, plans, blueprints, specifications, manuals, designs, drawings, recorded knowledge, surveys, engineering reports, equipment and parts lists, test reports, materials standards, catalogues, performance and quality control standards, procedures and records, research and development data, price lists, mailing lists, photographs, production data, sales and purchase records, sales order files, records, data, media materials and plates, advertising, marketing, promotional and sales materials, files and materials relating to suppliers, vendors and other service providers, and all other books, records, intangibles, files, maps, accounting information and records and other similar information or data Used in connection with the Weatherford Compression Business (collectively, the "Weatherford Compression Business Records") in whatever media such Weatherford Compression Business Records may be retained and stored, including without limitation any Transferring Weatherford Entities' proprietary computer and automatic machinery software and programs and source disks that are Used thereby in the Weatherford Compression Business and listed on Schedule 2.1(c)(2)(vi) to this Formation Agreement, and program documentation, tapes, manuals, forms, guides and other materials with respect thereto Used in connection with the Weatherford Compression Business;


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(vii) All miscellaneous assets listed on Schedule 2.1(c)(2)(vii) to this Formation Agreement;


(viii) All rights in, to and under all express or implied warranties, representations, indemnities, covenants or other agreements of any third parties arising from or attributable to the Weatherford Compression Business or the Included Weatherford Assets;


(ix) To the extent permitted by law, all permits, approvals, licenses, qualifications, product registrations, safety certifications and other similar authorizations Used in connection with the Weatherford Compression Business including without limitation those listed on Schedule 2.1(c)(2)(ix) to this Formation Agreement;


(x) The rights of the Weatherford Compression Business in the patents, patent applications, trademarks, trade names, service marks, service names, registered user names, copyrights and copyright applications and related agreements and licenses Owned by any Transferring Weatherford Entity and Used in the Weatherford Compression Business (all of which are identified on Schedule 2.1(c)(2)(x) to this Formation Agreement), and all designs, plans, inventions, trade secrets, processes, procedures, research records, manufacturing know-how and formulas, whether patentable or unpatentable, and similar proprietary rights wherever located, Owned by any Weatherford Entity that are Used in connection with the Weatherford Compression Business;


(xi) All other intangible personal property of the Weatherford Compression Business;


(xii) The bank accounts listed on Schedule 2.1(c)(2)(xii) to this Formation Agreement, including without limitation the cash on deposit therein on the Closing Date; and


(xiii) All other rights, properties and assets Used exclusively for the Weatherford Compression Business of any character whatsoever, wherever located;


provided, however, that the Included Weatherford Assets do not include and WECC and the other Transferring Weatherford Entities shall retain all of their rights, titles and interests in and to (i) those specific assets, properties, rights, titles, interests, contracts, claims and estates described on Schedule 2.1(c)(2)(B) hereto and (ii) in the case of the Transferring Weatherford Entities other than WECC, those assets, properties, rights, titles, interests, contracts, claims and estates that are not dedicated exclusively to the compression business of such entities, (such retained assets, properties, rights, titles, interests, contracts, claims and estates, the "Excluded Weatherford Assets").


(3) Limited Contribution Transactions. On the Closing Date, in exchange for sixty four percent (64%) of the Membership Interests in Limited, WECC shall contribute to Limited, by assigning, transferring, conveying and delivering to Limited, and Limited shall accept as a contribution from WECC, pursuant to the Weatherford/Limited Assignment and Conveyance Agreement and other instruments of assignment and conveyance as contemplated by the Weatherford/Limited Assignment and Conveyance Agreement in form or forms attached as


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Exhibit J, an undivided one percent (1%) of the Included Weatherford Assets and its obligation under Section 2.1(c)(4) of this Formation Agreement to contribute cash as provided therein.


(4) Post-Closing Contribution and Transfer Transactions. Upon receipt of notice from the Partnership to Weatherford and WECC of the formation by the Partnership of the entities referred to in clauses (x) and (y) below (which the Partnership shall use its best efforts to complete not later than 90 days after the Closing Date), (i) WECC shall contribute to the Partnership an amount in cash necessary to allow the Partnership to purchase or otherwise acquire an undivided ninety-nine percent (99%) of the Additional Weatherford Assets, (ii) the Partnership shall use such contributed cash to purchase or otherwise acquire an undivided ninety-nine percent (99%) of the Additional Weatherford Assets pursuant to instruments of assignment and conveyance in form or forms mutually agreed upon by the Parties, (iii) WECC shall contribute to Limited an amount in cash necessary to allow Limited to purchase or otherwise acquire an undivided one percent (1%) of the Additional Weatherford Assets, and (iv) Limited shall use such contributed cash to purchase or otherwise acquire an undivided one percent (1%) of the Additional Weatherford Assets and shall transfer such undivided interest to the Partnership, in each case pursuant to instruments of assignment and conveyance in form or forms mutually agreed upon by the Parties.


(x) The Additional Weatherford Assets that are located in Venezuela,
Argentina and Austra ...