UNIVERSAL COMPRESSION HOLDINGS INC
GUARANTY AND COLLATERAL AGREEMENT
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>12
<FILENAME>h84190ex10-8.txt
<DESCRIPTION>GUARANTY AND COLLATERAL AGREEMENT
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.8


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                       GUARANTEE AND COLLATERAL AGREEMENT


                                     MADE BY


                    UNIVERSAL COMPRESSION HOLDINGS, INC.; AND
                           UNIVERSAL COMPRESSION, INC.


                         AND CERTAIN OF ITS SUBSIDIARIES


                                   IN FAVOR OF


                           FIRST UNION NATIONAL BANK,
                             AS ADMINISTRATIVE AGENT




                          DATED AS OF FEBRUARY 9, 2001



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<PAGE>   2
                                Table of Contents

<TABLE>
<CAPTION>
                                                                                                   Page
<S>                                                                                                <C>
SECTION 1.  DEFINED TERMS .......................................................................    1
         1.1      Definitions ...................................................................    1
         1.2      Other Definitional Provisions .................................................    3
SECTION 2.  GUARANTEE ...........................................................................    4
         2.1      Guarantee .....................................................................    4
         2.2      Right of Contribution .........................................................    5
         2.3      No Subrogation ................................................................    5
         2.4      Amendments, etc. with respect to the Company Obligations ......................    5
         2.5      Guarantee Absolute and Unconditional ..........................................    6
         2.6      Reinstatement .................................................................    7
         2.7      Payments ......................................................................    7
SECTION 3.  GRANT OF SECURITY INTEREST ..........................................................    7
         3.1      Collateral ....................................................................    7
         3.2      Transfer of Collateral ........................................................    8
SECTION 4.  REPRESENTATIONS AND WARRANTIES ......................................................    8
         4.1      Representations in Credit Agreement ...........................................    9
         4.2      Title; No Other Liens .........................................................    9
         4.3      Perfected First Priority Liens ................................................    9
         4.4      Chief Executive Office ........................................................    9
         4.5      Inventory and Equipment .......................................................    9
         4.6      Farm Products .................................................................    9
         4.7      Pledged Securities ............................................................    9
         4.8      Accounts ......................................................................   10
         4.10     Benefit to the Guarantor ......................................................   10
         4.11     Solvency ......................................................................   10
SECTION 5.  COVENANTS ...........................................................................   10
         5.1      Covenants in Credit Agreement .................................................   10
         5.2      Delivery of Instruments and Chattel Paper .....................................   10
         5.3      Insurance .....................................................................   10
         5.4      Maintenance of Perfected Security Interest; Further Documentation .............   10
         5.5      Changes in Locations, Name, etc. ..............................................   11
         5.6      Notices .......................................................................   11
         5.7      Pledged Securities ............................................................   11
         5.8      Accounts ......................................................................   12
SECTION 6.  REMEDIAL PROVISIONS .................................................................   13
         6.1      Certain Matters Relating to Accounts ..........................................   13
         6.2      Communications with Obligors; Grantors Remain Liable ..........................   13
         6.3      Pledged Stock .................................................................   14
         6.4      Proceeds to be Turned Over To Secured Party ...................................   15
         6.5      Application of Proceeds .......................................................   15
         6.6      Code and Other Remedies .......................................................   15
         6.8      Waiver; Deficiency ............................................................   16
         6.9      Non-judicial Enforcement ......................................................   16
SECTION 7.  THE SECURED PARTY ...................................................................   17
         7.1      Secured Party's Appointment as Attorney-in-Fact etc. ..........................   17
         7.2      Duty of Secured Party .........................................................   18
         7.3      Execution of Financing Statements .............................................   19
         7.4      Authority of Secured Party ....................................................   19
SECTION 8.  SUBORDINATION OF INDEBTEDNESS .......................................................   19
         8.1      Subordination of All Guarantor Claims .........................................   19
         8.2      Claims in Bankruptcy ..........................................................   19
</TABLE>


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<TABLE>
<S>                                                                                                 <C>
         8.3      Payments Held in Trust ........................................................   20
         8.4      Liens Subordinate .............................................................   20
         8.5      Notation of Records ...........................................................   20
SECTION 9.  MISCELLANEOUS .......................................................................   20
         9.1      Amendments in Writing .........................................................   20
         9.2      Notices .......................................................................   20
         9.3      No Waiver by Course of Conduct; Cumulative Remedies ...........................   21
         9.4      Enforcement Expenses; Indemnification .........................................   21
         9.5      Successors and Assigns ........................................................   21
         9.6      Set-Off .......................................................................   21
         9.7      Counterparts ..................................................................   21
         9.8      Severability ..................................................................   22
         9.9      Integration ...................................................................   22
         9.10     GOVERNING LAW .................................................................   22
         9.11     Submission To Jurisdiction; Waivers ...........................................   22
         9.12     Acknowledgments ...............................................................   23
         9.13     WAIVERS OF JURY TRIAL .........................................................   23
         9.14     Section Headings ..............................................................   23
         9.15     Additional Grantors ...........................................................   23
         9.16     Releases ......................................................................   23
         9.17     Acceptance ....................................................................   24
</TABLE>


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         GUARANTEE AND COLLATERAL AGREEMENT, dated as of February 9, 2001, made
by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, but excluding Universal Compression
Holdings, Inc., the "Grantors"), in favor of FIRST UNION NATIONAL BANK, as
Administrative Agent (in such capacity, the "Secured Party") for the banks and
other financial institutions or entities (the "Lenders") from time to time
parties to the Credit Agreement referred to below, the Issuing Bank (as defined
in the Credit Agreement) and, in the case of any Hedging Agreement referred to
below, any Lender Affiliate (as defined in the Credit Agreement).

                              W I T N E S S E T H:
                              --------------------

         WHEREAS, pursuant to that certain Senior Secured Revolving Credit
Agreement dated as of February 9, 2001 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among UNIVERSAL
COMPRESSION, INC., a Texas corporation (the "Company"), the Lenders and the
Secured Party, the Lenders have severally agreed to make revolving credit loans
to and extensions of credit on behalf of the Company upon the terms and subject
to the conditions set forth therein, up to the aggregate maximum principal
amount of $125,000,000;

         WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective revolving credit loans to and extensions of credit on
behalf of the Company under the Credit Agreement that the Grantors shall have
executed and delivered this Agreement to the Secured Party for the ratable
benefit of the Lenders; and

         NOW, THEREFORE, in consideration of the premises and to induce the
Secured Party and the Lenders to enter into the Credit Agreement and to induce
the Lenders to make their respective revolving credit loans to and extensions of
credit on behalf of the Company thereunder, each Grantor hereby agrees with the
Secured Party, for the ratable benefit of the Lenders, as follows:

                            SECTION 1. DEFINED TERMS

         1.1      Definitions. (a) Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement, and the following terms which are defined in the
Uniform Commercial Code in effect in the State of Texas on the date hereof are
used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm
Products, Instruments and Inventory.

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

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

         "Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants, rights or options to purchase any of the foregoing.


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         "Code": the Uniform Commercial Code as from time to time in effect in
the State of Texas.

         "Collateral": as defined in Section 3.

         "Collateral Account": any collateral account established by the Secured
Party as provided in Section 6.1 or 6.4.

         "Company Obligations": the collective reference to all obligations of
the Company under the Loan Documents, including, without limitation, the unpaid
principal of and interest on the Loans and the LC Exposure and all other
obligations and liabilities of the Company (including, without limitation,
interest accruing at the then applicable rate provided in the Credit Agreement
after the maturity of the Loans and the LC Exposure and interest accruing at the
then applicable rate provided in the Credit Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Company, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding) to the Secured Party or
any Lender (or, in the case of any Hedge Agreement referred to below, any Lender
Affiliate), whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, this Agreement, the other Loan Documents
or any Hedge Agreement entered into by the Company with any Lender (or any
Lender Affiliate) or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Secured Party or to the
Lenders that are required to be paid by the Company pursuant to the terms of any
of the foregoing agreements).

         "Excluded Property": the collective reference to all finished gas
compression equipment of any Grantor, all Accounts arising therefrom, all
General Intangibles relating thereto and all Chattel Paper created thereby,
which is subject to or pledged as security for an Operating Equipment Lease
Facility.

         "General Intangibles": all "general intangibles" as such term is
defined in Section 9-106 of the Uniform Commercial Code in effect in the State
of Texas on the date hereof and, in any event, including, without limitation,
with respect to any Grantor, all contracts, agreements, instruments and
indentures in any form, and portions thereof, to which such Grantor is a party
or under which such Grantor has any right, title or interest or to which such
Grantor or any property of such Grantor is subject, as the same may from time to
time be amended, supplemented or otherwise modified, including, without
limitation, (i) all rights of such Grantor to receive moneys due and to become
due to it thereunder or in connection therewith, (ii) all rights of such Grantor
to damages arising thereunder and (iii) all rights of such Grantor to perform
and to exercise all remedies thereunder, in each case to the extent the grant by
such Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture is not
prohibited by such contract, agreement, instrument or indenture without the
consent of any other party thereto, would not give any other party to such
contract, agreement, instrument or indenture the right to terminate its
obligations thereunder, or is permitted with consent if all necessary consents
to such grant of a security interest have been obtained from the other parties
thereto (it being understood that the foregoing shall not be deemed to obligate
such Grantor to obtain such consents); provided, that


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the foregoing limitation shall not affect, limit, restrict or impair the grant
by such Grantor of a security interest pursuant to this Agreement in any
Receivable or any money or other amounts due or to become due under any such
contract, agreement, instrument or indenture; and provided further, that any
Operating Lease and all related agreements and contracts are excluded from this
definition.

         "Guarantor Obligations": with respect to any Guarantor, the collective
reference to (i) such Guarantor's obligations under Section 2 of this Guarantee
and Collateral Agreement and (ii) all obligations and liabilities of such
Guarantor which may arise under or in connection with this Agreement or any
other Loan Document to which such Guarantor is a party.

         "Guarantors": the collective reference to Universal Compression
Holdings, Inc. and each other entity that may hereafter become a Guarantor
hereunder.

         "Issuers": the collective reference to each issuer of a Pledged
Security.

         "Obligations": (i) in the case of the Company, the Company Obligations,
and (ii) in the case of each Guarantor, its Guarantor Obligations.

         "Pledged Securities": the collective reference to (a) the Pledged
Stock, and (b)(i) the certificates or instruments, if any, representing such
securities, (ii) all dividends (cash, stock or otherwise), cash, instruments,
rights to subscribe, purchase or sell and all other rights and property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Securities, (iii) all replacements,
additions to and substitutions for any of the property referred to in this
definition, including, without limitation, claims against third parties, (iv)
the proceeds, interest, profits and other income of or on any of the property
referred to in this definition, and (v) all books and records relating to any of
the property referred to in this definition..

         "Pledged Stock": the shares of Capital Stock listed on Schedule 2,
together with any other shares, stock certificates, options or rights of any
nature whatsoever in respect of the Capital Stock of any Person that may be
issued or granted to, or held by, any Grantor while this Agreement is in effect.

         "Proceeds": all "proceeds" as such term is defined in Section 9-306(1)
of the Code on the date hereof and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Securities,
collections thereon or distributions or payments with respect thereto.

         "Securities Act": the Securities Act of 1933, as amended.

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

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


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

         (d)      For the purposes of Sections 4 and 5, and, in the case of
clauses (iv), (v) and (vi) below, Section 3, each reference to Collateral or to
any relevant type or item of Property constituting Collateral shall be deemed to
exclude (i) tangible Property that is not located in the United States
(including its possessions), (ii) motor vehicles the perfection of a security
interest in which is excluded from the Uniform Commercial Code in the relevant
jurisdiction, (iii) voting equity interests in any foreign Subsidiary, to the
extent (but only to the extent) required to prevent the Collateral from
including more than 65% of all voting equity interests in such foreign
Subsidiary and (iv) any general intangibles or other rights arising under any
contract, instrument, license or other document if (but only to the extent that)
the grant of a security interest therein would constitute a material violation
of a valid and enforceable restriction in favor of a third party, unless and
until all required consents shall have been obtained.

                              SECTION 2. GUARANTEE

         2.1      Guarantee. (a) Each of the Guarantors hereby, jointly and
severally, unconditionally and irrevocably, guarantees to the Secured Party, for
the ratable benefit of the Lenders and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment and performance by the
Company when due (whether at the stated maturity, by acceleration or otherwise)
of the Company Obligations. This is a guarantee of payment and not collection
and the liability of each Guarantor is primary and not secondary.

         (b)      Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).

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

         (d)      Each Guarantor agrees that if the maturity of the Company
Obligations is accelerated by bankruptcy or otherwise, such maturity shall also
be deemed accelerated for the purpose of this guarantee without demand or notice
to such Guarantor. The guarantee contained in this Section 2 shall remain in
full force and effect until all the Company Obligations and the obligations of
each Guarantor under the guarantee contained in this Section 2 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
no Company Obligations may be outstanding.

         (e)      No payment made by the Company, any of the Guarantors, any
other guarantor or any other Person or received or collected by the Secured
Party or any Lender from the Company, any of the Guarantors, any other guarantor
or any other Person by virtue of any action or proceeding or any


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set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Company Obligations shall be deemed to modify,
reduce, release or otherwise affect the liability of any Guarantor hereunder
which shall, notwithstanding any such payment (other than any payment made by
such Guarantor in respect of the Company Obligations or any payment received or
collected from such Guarantor in respect of the Company Obligations), remain
liable for the Company Obligations up to the maximum liability of such Guarantor
hereunder until, subject to Section 2.6, the Company Obligations are paid in
full and the Commitments are terminated.

         2.2      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 which 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 2.3. The provisions of
this Section 2.2 shall in no respect limit the obligations and liabilities of
any Guarantor to the Secured Party and the Lenders, and each Guarantor shall
remain liable to the Secured Party and the Lenders for the full amount
guaranteed by such Guarantor hereunder.

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

         2.4      Amendments, etc. with respect to the Company Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor (a) any demand for payment of any of the Company
Obligations made by the Secured Party or any Lender may be rescinded by the
Secured Party or such Lender and any of the Company Obligations continued, (b)
the Company Obligations, the liability of any other Person upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by or any indulgence or forebearance in respect thereof granted by, the
Secured Party or any Lender, (c) the Credit Agreement, the other Loan Documents,
any Hedging Agreement and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Secured Party (or the Required Lenders or


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all Lenders, as the case may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Secured Party or any Lender for the payment of the Company Obligations may be
sold, exchanged, waived, surrendered or released, and (e) any other event shall
occur which constitutes a defense or release of security generally, except full
and final payment of the Company Obligations. Neither the Secured Party 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 Company Obligations or for the
guarantee contained in this Section 2 or any property subject thereto.

         2.5      Guarantee Absolute and Unconditional. Each Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Company Obligations and notice of or proof of reliance by the Secured Party or
any Lender upon the guarantee contained in this Section 2 or acceptance of the
guarantee contained in this Section 2; the Company Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon the guarantee contained
in this Section 2 and no notice of creation of the Company Obligations or any
extension of credit already or hereafter contracted by or extended to the
Company need be given to any Guarantor; and all dealings between the Company and
any of the Guarantors, on the one hand, and the Secured Party and the Lenders,
on the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this Section 2. Each
Guarantor waives diligence, presentment, protest, demand for payment and notice
of default or nonpayment to or upon the Company or any of the Guarantors with
respect to the Company Obligations. Each Guarantor understands and agrees that
the guarantee contained in this Section 2 shall be construed as a continuing,
completed, absolute and unconditional guarantee of payment without regard to (a)
the validity or enforceability of the Credit Agreement or any other Loan
Document, any of the Company 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 Secured Party 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 Company or any other
Person against the Secured Party or any Lender, (c) the insolvency, bankruptcy,
arrangement, reorganization, adjustment, composition, liquidation, disability,
dissolution or lack of power of the Company or any other Guarantor or any other
Person at any time liable for the payment of all or part of the Obligations; or
any sale, lease or transfer of any or all of the assets of the Company or any
other Guarantor, or any changes in the shareholders of the Company or the
Guarantor; (d) the fact that any Collateral or Lien contemplated or intended to
be given, created or granted as security for the repayment of the Obligations
shall not be properly perfected or created, or shall prove to be unenforceable
or subordinate to any other Lien, it being recognized and agreed by each of the
Guarantors that it is not entering into this Agreement in reliance on, or in
contemplation of the benefits of, the validity, enforceability, collectability
or value of any of the Collateral for the Obligations; or (e) any other
circumstance or act whatsoever, including any action or omission of the type
described in Section 2.4 (with or without notice to or knowledge of the Company
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Company for the Company Obligations, or of
such Guarantor under the guarantee contained in this Section 2, in bankruptcy or
in any other instance. When making any demand hereunder or otherwise pursuing
its rights and remedies hereunder against any Guarantor, the Secured Party or
any Lender may, but shall be under no obligation to, make a similar demand on or
otherwise pursue such rights and remedies as it may have against the Company,
any other Guarantor or any other Person or against any collateral security or
guarantee for


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<PAGE>   10
the Company Obligations or any right of offset with respect thereto, and any
failure by the Secured Party or any Lender to make any such demand, to pursue
such other rights or remedies or to collect any payments from the Company, any
other Guarantor or any other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
the Company, any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of law, of the
Secured Party or any Lender against any Guarantor. For the purposes hereof
"demand" shall include the commencement and continuance of any legal
proceedings.

         2.6      Reinstatement. The guarantee contained in this Section 2 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Company Obligations is rescinded or
must otherwise be restored or returned by the Secured Party or any Lender upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any Guarantor or any substantial part of its property, or otherwise,
all as though such payments had not been made.

         2.7      Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid without set-off or counterclaim and in immediately
available funds to the Person, in the amount and at the time and place required
for the Company Obligations in respect of which such payments are made.

                      SECTION 3. GRANT OF SECURITY INTEREST

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

         (a)      all Accounts;

         (b)      all Chattel Paper;

         (c)      all Documents;

         (d)      all Equipment, excluding finished gas compression equipment
used in connection with service contracts or subject to an Operating Equipment
Lease unless such finished gas compression equipment is specifically described
on Schedule 6, as such Schedule 6 may, from time to time, be amended,
supplemented and/or restated;

         (e)      all General Intangibles;


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         (f)      all Instruments;

         (g)      all Inventory, excluding finished gas compressors held by any
Grantor for sale or lease unless such finished gas compressors are specifically
described on Schedule 6, as such Schedule 6 may, from time to time, be amended,
supplemented and/or restated;

         (h)      all Pledged Securities;

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

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

         It is hereby expressly understood and agreed that (a) the term
"Collateral" (as defined above) shall not include any Excluded Property, (b) the
Excluded Property shall not, at any time, be subject to the Lien created by and
existing under this Agreement, and (c) the rights and remedies of Secured Party,
whether existing under this Agreement, by law or otherwise, shall not extend to
the Excluded Property.

         3.2      Transfer of Collateral. All certificates or instruments
representing or evidencing the Pledged Stock shall be delivered to and held
pursuant hereto by the Secured Party or a Person designated by the Secured Party
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, or (in the case
of either certificated or uncertificated securities) Secured Party shall have
been provided with evidence that the Pledged Stock has been otherwise delivered
to Secured Party in accordance with Section 8-301 of the Code, and accompanied
by any required transfer tax stamps to effect the pledge of the Pledged Stock to
the Secured Party. Notwithstanding the preceding sentence, at the Secured
Party's discretion, all Pledged Stock must be delivered or transferred in such
manner as to permit the Secured Party to be a "protected purchaser" to the
extent of its security interest as provided in Section 8-303 of the Code (if the
Secured Party otherwise qualifies as a protected purchaser). During the
continuance of an Event of Default, the Secured Party shall have the right, at
any time in its discretion and without notice, to transfer to or to register in
the name of the Secured Party or any of its nominees any or all of the Pledged
Stock, subject only to the revocable rights specified in Section 6.3. In
addition, during the continuance of an Event of Default, the Secured Party shall
have the right at any time to exchange certificates or instruments representing
or evidencing Pledged Stock for certificates or instruments of smaller or larger
denominations.

                    SECTION 4. REPRESENTATIONS AND WARRANTIES

         To induce the Secured Party and the Lenders to enter into the Credit
Agreement and to induce the Lenders to make their respective revolving credit
loans to and extensions of credit on behalf of the Company thereunder, each
Grantor hereby represents and warrants to the Secured Party and each Lender
that:


                                       8
<PAGE>   12
         4.1      Representations in Credit Agreement. In the case of each
Guarantor, the representations and warranties set forth in Article III of the
Credit Agreement as they relate to such Guarantor or to the Loan Documents to
which such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct in all material respects, and the Secured Party
and each Lender shall be entitled to rely on each of them as if they were fully
set forth herein, provided that each reference in each such representation and
warranty to the Company's knowledge shall, for the purposes of this Section 4.1,
be deemed to be a reference to such Guarantor's knowledge.

         4.2      Title; No Other Liens. Except for the security interest
granted to the Secured Party for the ratable benefit of the Lenders pursuant to
this Agreement and the other Liens permitted to exist on the Collateral pursuant
to Section 9.02 of the Credit Agreement, such Grantor owns its respective items
of the Collateral free and clear of any and all Liens or claims of others. No
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as have
been filed in favor of the Secured Party, for the ratable benefit of the
Lenders, pursuant to this Agreement or as are filed to secure Liens permitted by
Section 9.02 of the Credit Agreement.

         4.3      Perfected First Priority Liens. The security interests granted
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Secured Party in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Secured Party, for the
ratable benefit of the Lenders, as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except, in each case, Liens expressly permitted by
the Credit Agreement.

         4.4      Chief Executive Office. On the date hereof, such Grantor's
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.

         4.5      Inventory and Equipment. On the date hereof, the Inventory and
the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.

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

         4.7      Pledged Securities. (a) The shares of Pledged Stock pledged by
such Grantor hereunder constitute 100% of the issued and outstanding shares of
all classes of the Capital Stock of each Issuer owned by such Grantor that is a
Domestic Subsidiary, and 65% of the issued and outstanding shares of all classes
of the Capital Stock of each Issuer owned by such Grantor that is a Foreign
Subsidiary.

         (b)      All the shares of the Pledged Stock issued by any Subsidiary
or Affiliate of the Company have been duly and validly issued and are fully paid
and nonassessable.


                                       9
<PAGE>   13
         (c)      Except to the extent permitted under the Credit Agreement,
such Grantor is the record and beneficial owner of, and has good and marketable
title to, the Pledged Securities pledged by it hereunder, free of any and all
Liens or options in favor of, or claims of, any other Person, except the
security interest created by this Agreement.

         4.8      Accounts. No amount payable to such Grantor under or in
connection with any Account is evidenced by any Instrument or Chattel Paper in
excess of $1,000,000 which has not been delivered to the Secured Party. The
places where such Grantor keeps its records concerning such Grantor's Accounts
are listed on Schedule 4 or such other location or locations of which such
Grantor shall have provided prior written notice to the Secured Party pursuant
to Section 5.5.

         4.9      Benefit to the Guarantor. Each Guarantor is a wholly-owned
direct or indirect Subsidiary of the Borrower and its guaranty and surety
obligations pursuant to this Agreement reasonably may be expected to benefit,
directly or indirectly, it; and it has determined that this Agreement is
necessary and convenient to the conduct, promotion and attainment of the
business of such Guarantor and the Company.

         4.10     Solvency. Each Grantor (i) is not insolvent as of the date
hereof and will not be rendered insolvent as a result of this Agreement, (ii) is
not engaged in business or a transaction, or about to engage in a business or a
transaction, for which any Property or assets remaining with it constitute
unreasonably small capital, and (iii) does not intend to incur, or believe it
will incur, debts that will be beyond its ability to pay as such debts mature.

                              SECTION 5. COVENANTS

         Each Grantor covenants and agrees with the Secured Party and the
Lenders that, from and after the date of this Agreement until the Obligations
shall have been paid in full and the Commitments shall have terminated.

         5.1      Covenants in Credit Agreement. In the case of each Guarantor,
such Guarantor shall take, or shall refrain from taking, as the case may be,
each action that is necessary to be taken or not taken, as the case may be, so
that no Default or Event of Default is caused by the failure to take such action
or to refrain from taking such action by such Guarantor or any of its
Subsidiaries.

         5.2      Delivery of Instruments and Chattel Paper. If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper having a value in excess
$1,000,000, such Instrument or Chattel Paper shall be immediately delivered to
the Secured Party, duly indorsed in a manner satisfactory to the Secured Party,
to be held as Collateral pursuant to this Agreement.

         5.3      Insurance. Each Grantor's collateral shall be insured as
required by the Credit Agreement.

         5.4      Maintenance of Perfected Security Interest; Further
Documentation. (a) Such Grantor shall maintain the security interest created by
this Agreement as a perfected security interest having


                                       10
<PAGE>   14
at least the priority described in Section 4.3 and shall defend such security
interest against the claims and demands of all Persons whomsoever.

         (b)      Such Grantor will furnish to the Secured Party and the Lenders
from time to time statements and schedules further identifying and describing
the Collateral and its locations and such other reports in connection with the
Collateral as the Secured Party may reasonably request, all in reasonable
detail.

         (c)      At any time and from time to time, upon the written request of
the Secured Party, and at the sole expense of such Grantor, such Grantor will
promptly and duly execute, deliver and/or have recorded with appropriate
agencies such further instruments and documents and take such further actions as
the Secured Party may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby.

         5.5      Changes in Locations, Name, etc. Such Grantor will not, except
upon 30 days' prior written notice to the Secured Party and delivery to the
Secured Party of (a) all additional executed financing statements and other
documents reasonably requested by the Secured Party to maintain the validity,
perfection and priority of the security interests provided for herein, and (b)
if applicable, a written supplement to Schedule 5 showing any additional
location at which Inventory or Equipment shall be kept:

         (a)      permit any of the Inventory (other than Inventory in transit
to another location as set forth on Schedule 5 or to a customer) or Equipment
(other than Equipment in transit to another location as set forth on Schedule 5
or mobile goods) to be kept at a location other than those listed on Schedule 5;

         (b)      change the location of its chief executive office or sole
place of business from that referred to in Section 4.4; or

         (c)      change its name, identity or corporate structure to such an
extent that any financing statement filed by the Secured Party in connection
with this Agreement would become misleading.

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

         5.7      Pledged Securities. (a) If such Grantor shall become entitled
to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the capital stock of any Issuer that is a Subsidiary of the Company,
whether in addition to, in substitution for, as a conversion of, or in exchange
for, any shares of the Pledged Stock, or otherwise in respect


                                       11
<PAGE>   15
thereof, such Grantor shall accept the same as the agent of the Secured Party
and the Lenders, hold the same in trust for the Secured Party and the Lenders
and deliver the same forthwith to the Secured Party in the exact form received,
duly indorsed by such Grantor to the Secured Party, if required, together with
an undated stock power covering such certificate duly executed in blank by such
Grantor and with, if the Secured Party so requests, signature guaranteed, to be
held by the Secured Party, subject to the terms hereof, as additional collateral
security for the Obligations. The foregoing shall only apply to 65% of such
shares or rights in the case of an Issuer that is a Foreign Subsidiary. If an
Event of Default shall have occurred and be continuing, (i) any sums paid upon
or in respect of the Pledged Securities upon the liquidation or dissolution of
any Issuer shall be paid over to the Secured Party to be held by it hereunder as
additional collateral security for the Obligations and (ii) in case any
distribution of capital shall be made on or in respect of the Pledged Securities
or any property shall be distributed upon or with respect to the Pledged
Securities pursuant to the recapitalization or reclassification of the capital
of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall, unless otherwise subject to a perfected security interest in
favor of the Secured Party, be delivered to the Secured Party to be held by it
hereunder as additional collateral security for the Obligations. If any sums of
money or property so paid or distributed in respect of the Pledged Securities
shall be received by such Grantor, such Grantor shall, until such money or
property is paid or delivered to the Secured Party, hold such money or property
in trust for the Lenders, segregated from other funds of such Grantor, as
additional collateral security for the Obligations.

         (b)      Without the prior written consent of the Secured Party, such
Grantor will not (i) unless otherwise permitted hereby, vote to enable, or take
any other action to permit, any Issuer that is a Subsidiary of the Company to
issue any stock or other equity securities of any nature (except to the extent
such stock or other securities held by such Grantor are pledged to the Secured
Party hereunder) or to issue any other securities convertible into or granting
the right to purchase or exchange for any stock or other equity securities of
any nature of any Issuer that is a Subsidiary of the Company, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction
expressly permitted by the Credit Agreement), (iii) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with respect
to, any of the Pledged Securities or Proceeds thereof, or any interest therein,
except for the security interests created by this Agreement or permitted by the
Credit Agreement, or (iv) enter into any agreement or undertaking restricting
the right or ability of such Grantor or the Secured Party to sell, assign,
transfer or otherwise dispose of any of the Pledged Securities or Proceeds
thereof (except, in the case of this clause (iv), as expressly permitted under
the Credit Agreement or in connection with a disposition expressly permitted by
the Credit Agreement).

         (c)      Each Grantor shall furnish to the Secured Party such stock
powers and other instruments as may be required by the Secured Party to assure
the transferability of the Pledged Securities when and as often as may be
reasonably requested by the Secured Party.

         5.8      Accounts. Other than in the ordinary course of business, and
with respect to an Account or Accounts in the aggregate amount of $50,000 or
greater, such Grantor will not (a) grant any extension of the time of payment of
such Account or Accounts, (b) compromise or settle such Account or Accounts for
less than the full amount thereof, (c) release, wholly or partially, any Person


                                       12
<PAGE>   16
liable from the payment of such Account or Accounts, (d) allow any credit or
discount whatsoever on such Account or Accounts, or (e) amend, supplement or
modify such Account or Accounts in any manner that could adversely affect the
value thereof.

                         SECTION 6. REMEDIAL PROVISIONS

         6.1      Certain Matters Relating to Accounts. (a) The Secured Party
shall have the right to make test verifications of the Accounts in any manner
and through any medium that it reasonably considers advisable, and the relevant
Grantor shall furnish all such assistance and information as the Secured Party
may reasonably require in connection with such test verifications. At any time
while an Event of Default shall have occurred and be continuing, upon the
Secured Party's request and at the expense of the relevant Grantor, such Grantor
shall cause independent public accountants or others satisfactory to the Secured
Party to furnish to the Secured Party reports showing reconciliations, aging and
test verifications of, and trial balances for, the Accounts.

         (b)      The Secured Party hereby authorizes each Grantor to collect
such Grantor's Account, and the Secured Party may curtail or terminate said
authority at any time after the occurrence and during the continuance of an
Event of Default. If required by the Secured Party at any time after the
occurrence and during the continuance of an Event of Default, any Proceeds
constituting collections of such Accounts, when collected by such Grantor, (i)
shall be forthwith (and, in any event, within two Business Days) be deposited by
such Grantor in the exact form received, duly indorsed by such Grantor to the
Secured Party if required, in a Collateral Account maintained under the sole
dominion and control of the Secured Party, subject to withdrawal by the Secured
Party for the account of the Lenders only as provided in Section 6.5, and (ii)
until so turned over, shall be held by such Grantor in trust for the Secured
Party and the Lenders, segregated from other funds of such Grantor. Each such
deposit of Proceeds of Accounts shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.
All Proceeds constituting collections of Accounts while held by the Collateral
Account bank (or by any Grantor in trust for the benefit of the Secured Party
and the other Lenders) shall continue to be collateral security for the
Obligations of the applicable Grantor and shall not constitute payment thereof
until applied as hereinafter provided. At any time when an Event of Default has
occurred and is continuing, at the Secured Party's election, the Secured Party
may apply all or any part of the funds on deposit in the Collateral Account
established by the relevant Grantor to the payment of the Obligations of such
Grantor then due and owing, such application to be made as set forth in Section
6.5 of this Agreement.

         (c)      At the Secured Party's request at any time after the
occurrence and during the continuance of an Event of Default, each Grantor shall
deliver to the Secured Party all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to such Grantor's
Accounts, including, without limitation, all original orders, invoices and
shipping receipts.

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


                                       13
<PAGE>   17
         (b)      Upon the request of the Secured Party at any time after the
occurrence and during the continuance of an Event of Default, each Grantor shall
notify the obligors on the Accounts that the Accounts have been assigned to the
Secured Party for the ratable benefit of the Lenders and that payments in
respect thereof shall be made directly to the Secured Party.

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

         6.3      Pledged Stock. (a) Unless an Event of Default shall have
occurred and be continuing, each Grantor shall be permitted to receive all cash
dividends paid in respect of the Pledged Stock, in each case to the extent that
payment thereof is not prohibited in the Credit Agreement, and to exercise all
voting and corporate rights with respect to the Pledged Securities; provided,
however, that no vote shall be cast or corporate right exercised or other action
taken which results in any violation of any provision of the Credit Agreement,
this Agreement or any other Loan Document.

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


                                       14
<PAGE>   18
         (c)      Each Grantor hereby authorizes and instructs each Issuer of
any Pledged Securities pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Secured Party in writing that (x) states
that an Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Grantor, and each Grantor agrees that each Issuer shall
be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to such
Pledged Securities directly to the Secured Party.

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

         6.5      Application of Proceeds. At any time after the occurrence and
during the continuance of an Event of Default, at the Secured Party's election,
the Secured Party may apply all or any part of Proceeds of any Grantor held in
any Collateral Account in payment of the Obligations of such Grantor in such
order as the Secured Party may elect, and any part of such funds which the
Secured Party elects not so to apply and deems not required as collateral
security for such Obligations shall be paid over from time to time by the
Secured Party to the Company or to whomsoever may be lawfully entitled to
receive the same. Any balance of such Proceeds remaining after the Obligations
shall have been paid in full, no Letters of Credit shall be outstanding (or
shall be cash collateralized by an amount equal to the LC Exposure) and the
Commitments shall have terminated shall be paid over to the Company or to
whomsoever may be lawfully entitled to receive the same.

         6.6      Code and Other Remedies. (a) If an Event of Default shall
occur and be continuing, the Secured Party, on behalf of the Lenders, may
exercise, in addition to all other rights and remedies granted to them in this
Agreement, the other Loan Documents and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the Code or any other applicable law or otherwise
available at law or equity. Without limiting the generality of the foregoing,
the Secured Party, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law
referred to below) to or upon any Grantor or any other Person (all and each of
which demands, defenses, advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Secured Party or any Lender or elsewhere upon such
commercially reasonable terms and conditions as it may deem advisable and


                                       15
<PAGE>   19
at such commercially reasonable prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Secured
Party or any Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in any Grantor, which right or equity is hereby waived and
released to the fullest extent permitted under applicable law. Each Grantor
further agrees, at the Secured Party's request, to assemble its Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at such Grantor's premises or elsewhere. Any such
sale or transfer by the Secured Party either to itself or to any other Person
shall, to the fullest extent permitted under applicable law, be absolutely free
from any claim of right by any Grantor, including any equity or right of
redemption, stay or appraisal which such Grantor has or may have under any rule
of law, regulation or statute now existing or hereafter adopted. Upon any such
sale or transfer, the Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold or
transferred. The Secured Party shall apply the net proceeds of any action taken
by it pursuant to this Section 6.6 with respect to the Collateral of any
Grantor, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
of such Collateral or in any way relating to such Collateral or the rights of
the Secured Party and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations of such Grantor, in such order as the Secured Party may
elect, and only after such application and after the payment by the Secured
Party of any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the Code, need the Secured Party account for
the surplus, if any, to the applicable Grantor. To the extent permitted by
applicable law, each Grantor waives all claims, damages and demands it may
acquire against the Secured Party or any Lender arising out of the exercise by
them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition.

         (b)      In the event that the Secured Party elects not to sell the
Collateral of any Grantor, the Secured Party retains its rights to dispose of or
utilize such Collateral or any part or parts thereof in any manner authorized or
permitted by law or in equity, and to apply the proceeds of the same towards
payment of the Obligations of such Grantor. Each and every method of disposition
of the Collateral described in this Agreement shall constitute disposition in a
commercially reasonable manner.

         (c)      The Secured Party may appoint any Person as agent to perform
any act or acts necessary or incident to any sale or transfer of the Collateral.

         6.7      Waiver; Deficiency. Each Grantor waives and agrees not to
assert any rights or privileges which it may acquire under Section 9-112 of the
Code. Subject to Section 2.1(b), each Grantor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of its Collateral
are insufficient to pay its Obligations and the fees and disbursements of any
attorneys employed by the Secured Party or any Lender to collect such
deficiency.

         6.8      Non-judicial Enforcement. The Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law, each Grantor


                                       16
<PAGE>   20
expressly waives any and all legal rights which might otherwise require the
Secured Party to enforce its rights by judicial process.

                          SECTION 7. THE SECURED PARTY

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

                  (i) in the name of such Grantor or its own name, or otherwise,
         take possession of and indorse and collect any checks, drafts, notes,
         acceptances or other instruments for the payment of moneys due under
         any of its Account or with respect to any of its other Collateral and
         file any claim or take any other action or proceeding in any court of
         law or equity or otherwise deemed appropriate by the Secured Party for
         the purpose of collecting any and all such moneys due under any of its
         Account or with respect to any of its other Collateral whenever
         payable:

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

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

                  (iv) (l) direct any party liable for any payment under any of
         its Collateral to make payment of any and all moneys due or to become
         due thereunder directly to the Secured Party or as the Secured Party
         shall direct; (2) ask or demand for, collect, and receive payment of
         and receipt for, any and all moneys, claims and other amounts due or to
         become due at any time in respect of or arising out of any of its
         Collateral; (3) sign and indorse any invoices, freight or express
         bills, bills of lading, storage or warehouse receipts, drafts against
         debtors, assignments, verifications, notices and other documents in
         connection with any of its Collateral; (4) commence and prosecute any
         suits, actions or proceedings at law or in equity in any court of
         competent jurisdiction to collect any of its Collateral or any portion
         thereof and to enforce any other right in respect of any of its
         Collateral; (5) defend any suit, action or proceeding brought against
         such Grantor with respect to any of its Collateral; (6) settle,
         compromise or adjust any such suit, action or proceeding and, in
         connection therewith, give such discharges or releases as the Secured
         Party may deem appropriate; and (7) generally, sell, transfer, pledge
         and make any agreement with respect to or otherwise deal with any of
         its Collateral as fully and completely as though the Secured Party were
         the absolute owner


                                       17
<PAGE>   21
         thereof for all purposes, and do, at the Secured Party's option and
         such Grantor's expense, at any time, or from time to time, all acts and
         things which the Secured Party deems necessary to protect, preserve or
         realize upon any of such Grantor's Collateral and the Secured Party's
         and the Lenders' security interests therein and to effect the intent of
         this Agreement, all as fully and effectively as such Grantor might do.

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

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

         (c)      The expenses of the Secured Party incurred in connection with
actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable under the Credit Agreement on Loans from the date of payment by
the Secured Party to the date reimbursed by the relevant Grantor, shall be
payable by such Grantor to the Secured Party on demand.

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

         7.2      Duty of Secured Party. The Secured Party's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the Code or otherwise, shall be to
deal with it in the same manner as the Secured Party deals with similar property
for its own account and the Secured Party shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which comparable secured parties accord comparable collateral. To the fullest
extent permitted under applicable law, neither the Secured Party, any Lender nor
any of their respective officers, directors, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Grantor or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof.
The powers conferred on the Secured Party and the Lenders hereunder are solely
to protect the Secured Party's and the Lenders' interests in the Collateral and
shall not impose any duty upon the Secured Party or any Lender to exercise any
such powers. The Secured Party and the Lenders shall be accountable only for
amounts that they actually receive as a result of the exercise of such powers,
and neither they nor any of their officers, directors, employees or agents shall
be responsible to any Grantor for any act or failure to act hereunder, except
for their own gross negligence or willful misconduct. To the fullest extent
permitted by applicable law, the Secured Party shall be under no duty whatsoever
to make or give any presentment, notice of dishonor, protest, demand for
performance, notice of non-performance, notice of intent to accelerate, notice
of acceleration, or other notice or demand in connection with any Collateral or
the Obligations, or to take any steps


                                       18
<PAGE>   22
necessary to preserve any rights against any Grantor or other Person or
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
it has or is deemed to have knowledge of such matters. Each Grantor waives any
right of marshaling in respect of any and all Collateral, and waives any right
to require the Secured Party or any Lender to proceed against any Grantor or
other Person, exhaust any Collateral or enforce any other remedy which the
Secured Party or any Lender now has or may hereafter have against any Grantor or
other Person.

         7.3      Execution of Financing Statements. Pursuant to Section 9-402
of the Code and any other applicable laws, each Grantor, to the fullest extent
permitted under applicable law, authorizes the Secured Party to file or record
financing statements and other filing or recording documents or instruments with
respect to the Collateral without the signature of such Grantor in such form and
in such offices as the Secured Party reasonably determines appropriate to
perfect the security interests of the Secured Party under this Agreement. A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction.

         7.4      Authority of Secured Party. Each Grantor acknowledges that the
rights and responsibilities of the Secured Party under this Agreement with
respect to any action taken by the Secured Party or the exercise or non-exercise
by the Secured Party of any option, voting right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Secured Party 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 Secured Party and the
Grantors, the Secured Party shall be conclusively presumed to be acting as agent
for the Lenders with full and valid authority so to act or refrain from acting,
and no Grantor shall be under any obligation, or entitlement, to make any
inquiry respecting such authority.

                    SECTION 8. SUBORDINATION OF INDEBTEDNESS

         8.1      Subordination of All Guarantor Claims. As used herein, the
term "Guarantor Claims" shall mean all debts and obligations of the Company or
any other Grantor to any Grantor, whether such debts and obligations now exist
or are hereafter incurred or arise, or whether the obligation of the debtor
thereon be direct, contingent, primary, secondary, several, joint and several,
or otherwise, and irrespective of whether such debts or obligations be evidenced
by note, contract, open account, or otherwise, and irrespective of the Person or
Persons in whose favor such debts or obligations may, at their inception, have
been, or may hereafter be created, or the manner in which they have been or may
hereafter be acquired by. Except for payments permitted by the Credit Agreement,
upon the occurrence and during the continuance of an Event of Default and until
the Obligations shall be paid and satisfied in full, the Commitments are
terminated and the Grantor shall have performed all of its obligations hereunder
and under the other Loan Documents to which it is a party, no Grantor shall
receive or collect, directly or indirectly, from any obligor in respect thereof
any amount upon the Guarantor Claims.

         8.2      Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving any Grantor, the Secured


                                       19
<PAGE>   23
Party on behalf of the Secured Party and the Lenders shall have the right to
prove their claim in any proceeding, so as to establish their rights hereunder
and receive directly from the receiver, trustee or other court custodian,
dividends and payments which would otherwise be payable upon Guarantor Claims.
Each Grantor hereby assigns such dividends and payments to the Secured Party for
the benefit of the Lenders. Should any Agent or Lender receive, for application
upon the Obligations, any such dividend or payment which is otherwise payable to
any Grantor, and which, as to such Grantor, shall constitute a credit upon the
Guarantor Claims, then upon payment in full of the Obligations, the intended
recipient shall become subrogated to the rights of the Secured Party and the
Lenders to the extent that such payments to the Lenders on the Guarantor Claims
have contributed toward the liquidation of the Obligations, and such subrogation
shall be with respect to that proportion of the Obligations which would have
been unpaid if the Secured Party and the Lenders had not received dividends or
payments upon the Guarantor Claims.

         8.3      Payments Held in Trust. In the event that notwithstanding
Sections 8.1 and 8.2, any Grantor should receive any funds, payments, claims or
distributions which are prohibited by such Sections, then it agrees: (a) to hold
in trust for the Secured Party and the Lenders an amount equal to the amount of
all funds, payments, claims or distributions so received, and (b) that it shall
have absolutely no dominion over the amount of such funds, payments, claims or
distributions except to pay them promptly to the Secured Party, for the benefit
of the Secured Party and the Lenders; and each Grantor covenants promptly to pay
the same to the Secured Party.

         8.4      Liens Subordinate. Each Grantor agrees that, until the
Obligations are paid in full and the Commitments terminated, any Liens securing
payment of the Guarantor Claims shall be and remain inferior and subordinate to
any Liens securing payment of the Obligations, regardless of whether such
encumbrances in favor of such Grantor, any Secured Party or Lender presently
exist or are hereafter created or attach. Without the prior written consent of
the Required Lenders, no Grantor, during the period in which any of the
Obligations are outstanding or the Commitments are in effect, shall (a) exercise
or enforce any creditor's right it may have against any debtor in respect of the
Guarantor Claims, or (b) foreclose, repossess, sequester or otherwise take steps
or institute any action or proceeding (judicial or otherwise, including without
limitation the commencement of or joinder in any liquidation, bankruptcy,
rearrangement, debtor's relief or insolvency proceeding) to enforce any Lien
held by it.

         8.5      Notation of Records. All promissory notes and, upon the
request of the Secured Party, all accounts receivable ledgers or other evidence
of the Guarantor Claims accepted by or held by any Grantor shall contain a
specific written notice thereon that the indebtedness evidenced thereby is
subordinated under the terms of this Agreement.

                            SECTION 9. MISCELLANEOUS

         9.1      Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 12.04 of the Credit Agreement.

         9.2      Notices. All notices, requests and demands to or upon the
Secured Party or any Grantor hereunder shall be effected in the manner provided
for in Section 12.02 of the Credit


                                       20
<PAGE>   24
Agreement; provided that any such notice, request or demand to or upon any
Guarantor shall be addressed to such Guarantor at its notice address set forth
on Schedule 1.

         9.3      No Waiver by Course of Conduct; Cumulative Remedies. Neither
the Secured Party nor any Lender shall by any act (except by a written
instrument pursuant to Section 9.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Secured Party or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Secured Party 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 Secured Party or such Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.

         9.4      Enforcement Expenses; Indemnification. (a) Each Guarantor
agrees to pay or reimburse each Lender and the Secured Party for all its costs
and expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Loan Documents to which such Guarantor is a party,
including, without limitation, the reasonable fees and disbursements of counsel
to each Lender and of counsel to the Secured Party.

         (b)      The agreements in this Section 9.4 shall survive repayment of
the Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.

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

         9.6      Set-Off. In addition to any rights and remedies of the Secured
Party and the Lenders provided by law, the Secured Party and each Lender shall
have the right, without prior notice to any Grantor, any such notice being
expressly waived by each Grantor to the extent permitted by applicable law, upon
any amount becoming due and payable by any Grantor hereunder (whether at the
stated maturity, by acceleration or otherwise) to set off and appropriate and
apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or the
account of such Grantor. The Secured Party and each Lender agrees promptly to
notify the relevant Grantor and (if applicable) the Secured Party after any such
setoff and application made by the Secured Party or such Lender, provided that
the failure to give such notice shall not affect the validity of such setoff and
application.

         9.7      Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said


                                       21
<PAGE>   25
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and the Secured Party.

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

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

         9.10     GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND, TO THE
EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA.

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

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

                  (b)      to the fullest extent permitted under applicable law,
         such courts and waives any objection that it may now or hereafter have
         to the venue of any such action or proceeding in any such court or that
         such action or proceeding was brought in an inconvenient court and
         agrees not to plead or claim the same;

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

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

                  (e)      waives, to the maximum extent not prohibited by law,
         any right it may have to claim or recover in any legal action or
         proceeding referred to in this Section 8.11 any special, exemplary,
         punitive or consequential damages.


                                       22
<PAGE>   26
         9.12     Acknowledgments. Each Grantor hereby acknowledges that:

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

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

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

         9.13     WAIVERS OF JURY TRIAL. EACH GRANTOR AND THE SECURED PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

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

         9.15     Additional Grantors. Each Subsidiary of the Company that is
required to become a party to this Agreement pursuant to Section 5.1(i) of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex I hereto.

         9.16     Releases. (a) At such time as the Obligations shall have been
paid in full, no Letters of Credit are outstanding (or are cash collateralized
by an amount equal to the LC Exposure) and the Commitments have been terminated,
the Collateral shall be released from the Liens created hereby, and this
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Secured Party and each Grantor hereunder shall terminate,
all without delivery of any instrument or performance of any act by any party,
and all rights to the Collateral shall revert to the Grantors. At the request
and sole expense of any Grantor following any such termination, the Secured
Party shall deliver to such Grantor any Collateral held by the Secured Party
hereunder, and execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination.

         (b)      If any of the Collateral is released pursuant to Section 8.09
of the Credit Agreement, or if any of the collateral shall be sold, assigned,
transferred or otherwise disposed of by any Grantor, or if all the capital stock
of a Grantor shall be sold, transferred or otherwise disposed of and its
obligations hereunder shall have been released pursuant to the next sentence of
this Section 9.16(b), in either case in a transaction permitted by the Credit
Agreement or with the consent of the Majority


                                       23
<PAGE>   27
Lenders, then the Secured Party, at the request and sole expense of such
Grantor, shall execute and deliver to such Grantor all releases or other
documents reasonably necessary or desirable for the release of the Liens created
hereby on such Collateral. At the request and sole expense of the Company, a
Guarantor shall be released from its obligations hereunder in the event that all
the capital stock of such Guarantor shall be sold, transferred or otherwise
disposed of in a transaction permitted by the Credit Agreement or with the
consent of the Majority Lenders; provided that the Company shall have delivered
to the Secured Party at least three Business Days prior to the date of the
proposed release, a written request for release identifying the relevant
Guarantor, together with a certification by the Company stating that such
transaction is in compliance with the Credit Agreement and the other Loan
Documents or has been consented to by the Majority Lenders.

         (c)      Except as may be expressly applicable pursuant to Section
9-505 of the Code, no action taken or omission to act by the Secured Party or
the Lenders hereunder, including, without limitation, any exercise of voting or
consensual rights or any other action taken or inaction, shall be deemed to
constitute a retention of the Collateral in satisfaction of the Obligations or
otherwise to be in full satisfaction of the Obligations, and the Obligations
shall remain in full force and effect, until the Secured Party and the Lenders
shall have applied payments (including, without limitation, collections from
Collateral) towards the Obligations in the full amount then outstanding.

         9.17     Acceptance. Each Grantor hereby expressly waives notice of
acceptance of this Agreement, acceptance on the part of the Secured Party and
the Lenders being conclusively presumed by their request for this Agreement and
delivery of the same to the Secured Party.




                          [SIGNATURES BEGIN NEXT PAGE]



                                       24
<PAGE>   28
         IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
and Collateral Agreement to be duly executed and delivered as of the date first
above written.

                                           COMPANY:

                                           UNIVERSAL COMPRESSION, INC.,



                                           By:    ______________________________

                                           Name:  ______________________________

                                           Title: ______________________________





                    Guarantee and Collateral Signature Page 1
<PAGE>   29
                                           GUARANTORS:

                                           UNIVERSAL COMPRESSION HOLDINGS, INC.



                                           By:    ______________________________

                                           Name:  ______________________________

                                           Title: ______________________________





                    Guarantee and Collateral Signature Page 2
</TEXT>
</DOCUMENT>
