Exhibit 10.1
FIRST AMENDED MEMORANDUM OF UNDERSTANDING
The Settling Securities Parties, the Settling ERISA Parties and the
Settling Derivative Parties, (collectively, the "Settling Parties") have reached
an agreement in principle as set forth in this First Amended Memorandum of
Understanding (the "Memorandum") providing for the settlement and dismissal with
prejudice of the claims asserted in the Derivative Actions, the ERISA Actions
and the Consolidated Securities Action, on the terms and subject to the
conditions set forth below (the "Settlement")./1/
RECITALS
WHEREAS, on and after February 4, 2002, securities Class Actions were filed
by the plaintiffs named herein on behalf of themselves and all others similarly
situated in the United States District Court for the Southern District of Texas
(the "Federal Court"), entitled Pirelli Xxxxxxxxx Tire Corp. Retiree Medical
Benefits Trust, et al. v. Hanover Compressor Company, et al., Case No.
H-02-0410, XxXxxxx v. Hanover Compressor, Case No. H-02-0431, Xxxx v. Hanover
Compressor, Case No. H-02-0441, Xxxxxxxxx v. Hanover Compressor, Case No.
H-02-0491, Xxxxxxxxx v. Hanover Compressor, Case No. H-02-0526, Xxxxx v. Hanover
Compressor, Case No. H-02-0574, Xxxxx v. Hanover Compressor, Case No. H-02-0594,
Xxxx v. Hanover Compressor, Case No. H-02-0627, Xxxxxxx v. Hanover Compressor,
Case No. H-02-0652, Xxxxxxxx v. Hanover Compressor, Case No. H-02-0764, Fox v.
Hanover Compressor, Case No. H-02-0815; Xxxxx x. Xxxxxxxx, Case No. H-02-0959,
Detectives Endowment v. Hanover Compressor, Case No. H-02-1016, Montag v.
Hanover Compressor, Case No. H-02-1030 and Xxxxxxxx v. Hanover Compressor, Case
No. H-02-2306 (collectively, the "Securities Actions").
WHEREAS, by Order dated March 28, 2002, the Federal Court consolidated the
Securities Actions under the caption Pirelli Xxxxxxxxx Tire Corp. Retiree
Medical Benefits Trust, et al. v. Hanover Compressor Company, et al. (the
"Consolidated Securities Action");
WHEREAS, on and after April 10, 2002, derivative actions were filed in or
removed to the Federal Court, including Xxxx x. X'Xxxxxx, et al., Case No.
H-02-1332; Xxxxxxxx x. X'Xxxxxx, et al., Case No. H-02-1430; Xxxxxx x. X'Xxxxxx,
et al., Case No. H-02-1527; Xxxxxxx x. XxXxxx, et al., Case No. H-02-2994
(collectively, the "Settling Federal Derivative Actions") and Harbor Finance
Partners x. XxXxxx, et al., Case No. H-02-0761, as well as in the Delaware
Chancery Court, Xxxxxxx Family, LLC x. X'Xxxxxx,
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/1./ All capitalized terms not otherwise defined shall have the meaning set
forth in Section I below.
et al., No. CA 19410 (the "Settling State Derivative Action") (the Settling
Federal Derivative Actions and the Settling State Derivative Action are
collectively the "Settling Derivative Actions" and the Settling Derivative
Actions and Harbor Finance Partners are collectively the "Derivative Actions");
WHEREAS, on August 19, 2002 and August 26, 2002, the Settling Federal
Derivative Actions were consolidated into the Harbor Finance Partners action;
WHEREAS, by Order dated January 6, 2003, the Federal Court appointed
Xxxxxxx Xxxxxxxxx Tire, Retiree Medical Benefits Trust, Plumbers & Steamfitters,
Local 137 Pension Fund, X. Xxxxxx Xxxxx, 720 Capital Management, LLC and
Specialists DPM, Lead Plaintiffs and appointed Xxxxxxx Xxxxx Xxxxxxx Xxxxx &
Xxxxxx LLP, Lead Counsel, in the Consolidated Securities Action;
WHEREAS, on or after March 26, 2003, actions alleging violations of the
Employee Retirement Income Security Act ("ERISA") were filed by and/or on behalf
of the plaintiffs named herein (the "ERISA Plaintiffs") on behalf of themselves
and all other similarly situated, in the Federal Court, including Xxxxxxx v.
Hanover, et al., Case No. H-03-1155; ; Xxxxxxxxxxxx v. Hanover Compressor, et
al., Case No. H-03-1064; and Xxxxxxx x. Hanover Compressor, et al., Case No.
H-3-1095; (collectively, the "ERISA Actions");
WHEREAS, on May 12, 2003, Settling Defendants and certain of the Settling
Plaintiffs entered into a Memorandum of Understanding to resolve all claims that
have been or could be asserted in the Consolidated Securities Action, the
Derivative Actions, and the ERISA Actions (collectively, the "Actions");
WHEREAS, the Settling Parties have engaged in substantial arm's length
negotiations in an effort to resolve all claims that have been or could be
asserted in the Actions, including conducting numerous meetings and telephone
conferences where the terms of the agreements detailed herein were extensively
debated and negotiated;
WHEREAS, the Settling Securities Defendants, the Settling Derivative
Defendants and the Settling ERISA Defendants have denied and continue to deny
that they have liability as a result of any and all allegations contained in the
Actions and that they are entering into the Settlement in order to eliminate the
burden, distractions, expense and uncertainty of further litigation; and
WHEREAS, the Settling Parties and their counsel believe that the terms and
conditions of this Memorandum are fair, reasonable and adequate and are the
result of arm's length negotiations between the Settling Parties;
NOW, THEREFORE, in consideration of the promises and agreements, covenants,
representations, and warranties set forth herein, intending to be legally bound:
THE SETTLING PARTIES STIPULATE AND AGREE AS FOLLOWS:
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I. DEFINITIONS
The following additional definitions shall apply in this Memorandum:
(a) "Actions" means the Consolidated Securities Action, the Derivative
Actions and the ERISA Actions.
(b) "Effective Date" means the date of completion of the following:
(i) Court approval of the dismissal of the claims that have been or could be
asserted in each of the Actions in all material respects AND EITHER (ii)
expiration of the time to appeal or otherwise seek review of the Order and Final
Judgment which approves the Settlement without any appeal having been taken or
review sought; OR (iii) if an appeal is taken or review sought, the expiration
of five days after an appeal or review shall have been finally determined by the
highest court before which appeal or review is sought and which upholds the
terms of such appealed settlement and/or an Order and Final Judgment and is not
subject to further judicial review.
(c) "GKH" means GKH Partners, L.P., GKH Investments, L.P., GKH Private
Limited, HGW Associates, L.P., DWL Lumber Corp. and JAKK Holding Corp., each of
their respective present and former parents, subsidiaries and affiliates, the
present and former trustees, directors, officers, shareholders, general
partners, limited partners, employees, agents, attorneys and representatives of
each of the foregoing and the predecessors, successors and assigns of each of
the foregoing;
(d) "Hanover" or the "Company" means Hanover Compressor Company and
its subsidiaries and affiliates, agents, partnerships, joint ventures and their
assigns and successors in interest.
(e) "Lead Plaintiffs' Counsel" means Xxxxxxx Xxxxx Xxxxxxx Xxxxx &
Xxxxxx LLP.
(f) "Plan" means the Hanover Companies Retirement Savings Plan.
(g) "Released Defendants' Counsel" means counsel for each of the
Settling Defendants and each of their respective partners, associates, experts,
agents, insurers, advisors, successors and assigns.
(h) "Released Derivative Parties" means Released Defendants' Counsel,
Released Plaintiffs' Counsel, the Settling Derivative Plaintiffs, the Settling
Derivative Defendants, GKH and each of their parents, subsidiaries or
affiliates, and all of their respective present or former directors, officers,
underwriters, fiduciaries, trustees, employees, agents, insurers, attorneys and
advisors, and each of their successors, heirs, assigns, executors, personal
representatives and immediate families.
(i) "Released ERISA Parties" means Released Defendants' Counsel,
Released Plaintiffs' Counsel, the ERISA Plaintiffs, the ERISA Defendants, GKH
and each of their parents, subsidiaries or affiliates, and all of their
respective present or former directors, officers, underwriters, fiduciaries,
trustees, employees, agents, insurers,
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attorneys and advisors, and each of their successors, heirs, assigns, executors,
personal representatives and immediate families.
(j) "Released Parties" means: Released Plaintiffs' Counsel, Released
Defendants' Counsel, the Settling Securities Plaintiffs, the Settling Derivative
Plaintiffs, the Settling ERISA Plaintiffs, the Settling Securities Defendants,
the Settling Derivative Defendants, the Settling ERISA Defendants, GKH and
Schlumberger Limited and each of their parents, subsidiaries or affiliates, and
all of their respective present or former directors, officers, employees,
agents, fiduciaries, trustees, insurers, underwriters, attorneys and advisors,
as well as all of their successors, heirs, assigns, executors, personal
representatives and immediate families as well as the Plan, but does not include
PricewaterhouseCoopers, LLP.
(k) "Released Plaintiffs' Counsel" means counsel for each of the
Settling Plaintiffs and each of their respective partners, associates, experts,
agents, insurers, attorneys, advisors, successors and assigns.
(1) "Released Securities Parties" means Released Defendants' Counsel,
Released Plaintiffs' Counsel, the Settling Securities Plaintiffs, the Settling
Securities Defendants, Schlumberger Limited and each of their parents,
subsidiaries or affiliates, and all of their respective present or former
directors, officers, underwriters, fiduciaries, trustees, employees, agents,
insurers, attorneys and advisors, and each of their successors, heirs, assigns,
executors, personal representatives and immediate families.
(m) "Settling Defendants" means the defendants in the Consolidated
Securities Action, the defendants in the Settling Derivative Actions, and the
defendants in the ERISA Actions.
(n) "Settling Derivative Defendants" means Xxxxxxx X. X'Xxxxxx,
Xxxxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxx, Xxxxxxx X. XxXxxx, Xxx Xxxxxxx, Xx.,
Xxxxxx X. Xxxxxxxx, Xxxx X. Xxxx, Xxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxxxxx, Xxxxxx
X. Xxxx, X. Xxx Xxxxxxx, Xxxxxxx X. Xxxxx and Xxxxxxx.
(o) "Settling Derivative Parties" means the Settling Derivative
Plaintiffs and the Settling Derivative Defendants.
(p) "Settling Derivative Plaintiffs" means plaintiffs Xxxxx Xxxx,
Xxxxxxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxx X. Xxxxxxx, Xx. and Xxxxxxx Family, LLC.
(q) "Settling ERISA Defendants" means Xxxxxxx, Xxxxxxx X. XxXxxx,
Xxxxxxx X. Xxxxxxxx, Xxxx X. Xxxxxx, Xxxxxxx X. X'Xxxxxx and all Hanover
officers, directors or employees who may be deemed to be a fiduciary with
respect to the Plan.
(r) "Settling ERISA Parties" means the Plan, the Settling ERISA
Plaintiffs and the Settling ERISA Defendants.
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"Settling ERISA Plaintiffs" means the ERISA Plaintiffs and the
Settling ERISA Plaintiff Class.
(t) "Settling ERISA Plaintiff Class" means all current and former
employees who are or were participants in the Plan and all persons who are or
were beneficiaries of the Plan, and who at any time between the dates of May 4,
1999 and December 23, 2002 (the "ERISA Class Period") purchased and/or held
Hanover securities in their accounts in the Plan.
(u) "Settling Parties" means the Settling Securities Parties, the
Settling Derivative Parties and the Settling ERISA Parties.
(v) "Settling Plaintiffs" means the Settling Securities Plaintiffs,
the Settling Derivative Plaintiffs, and the Settling ERISA Plaintiffs.
(w) "Settling Securities Defendants" means Hanover, Xxxxxxx X. XxXxxx,
Xxxxxxx X. Xxxxxxxx, Xxxxxxx X. X'Xxxxxx, Xxxxxxx X. Xxxxx and GKH.
(x) "Settling Securities Parties" means the Settling Securities
Plaintiffs and the Settling Securities Defendants.
(y) "Settling Securities Plaintiffs" means the Lead Plaintiffs Pirelli
Xxxxxxxxx Tire Corp. Retiree Medical Benefits Trust, Plumbers & Steamfitters
Local 137 Pension Fund, X. Xxxxxx Xxxxx, 720 Capital Management LLC and
Specialists DPM and the Settling Securities Plaintiff Class.
(z) "Settling Securities Plaintiff Class" means all persons or
entities who purchased the equity or debt securities of Hanover or entities
affiliated therewith (collectively, the "Hanover Securities") between May 4,
1999 and December 23, 2002 (the "Class Period"). Excluded from the Settling
Securities Plaintiff Class are those persons who were officers and/or directors
of Hanover during the Class Period as well as the Settling Securities
Defendants, members of their immediate families, their affiliates and those
members of the Settling Securities Plaintiff Class that timely and validly
exclude themselves from the Settling Securities Plaintiff Class. Also excluded
from the Settling Securities Plaintiff Class are Schlumberger Limited and GKH
and their subsidiaries.
II. SETTLEMENT TERMS FOR THE CONSOLIDATED SECURITIES ACTION
(a) Securities Settlement Agreement. The Settling Securities Parties
shall use all reasonable efforts, acting in good faith, to agree upon, execute,
and move the Federal Court for preliminary approval of a mutually agreeable
definitive settlement agreement and such other documentation as may be required
in order to obtain final approval of the settlement of the claims that have been
or could be asserted by the members of the Settling Securities Plaintiff Class
against the Settling Securities Defendants (the "Securities Settlement") by the
Federal Court within one hundred and twenty days (120) of execution of this
Memorandum (the "Securities Settlement
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Agreement"). The terms of the Securities Settlement Agreement shall be
consistent with the terms of this Memorandum and shall provide:
(i) that the Settling Securities Defendants have denied, and
continue to deny that they have liability as a result of, any and all
allegations contained in the Consolidated Securities Action and that they are
entering into the Settlement in order to eliminate the burden, distraction,
expense and uncertainty of further litigation;
(ii) that GKH has entered into the Securities Settlement and has
agreed to contribute 2,495,000 shares of Hanover common stock to settle all
potential liability it might have under the Securities Act of 1933 and has
agreed to contribute an additional 5,000 shares of Hanover common stock to
settle any and all remaining claims in the Actions;
(iii) for the creation, and presentation to the Federal Court for
approval, of an appropriate form of notice, proof of claim, and related
materials;
(iv) for the creation of the Securities Settlement Fund, pursuant
to the terms of paragraph (c) below;
(v) for the implementation of the various corporate governance
changes detailed in Exhibit A attached hereto, which changes were the subject of
substantial negotiation by and among the Settling Parties and their counsel;
(vi) for the calculation and payment of allowable claims;
(vii) for the termination of the Consolidated Securities Action
consistent with the terms set forth below;
(viii) for the release of claims against the Released Securities
Parties, pursuant to the terms set forth below;
(ix) for the requirements and procedures for notice to members of
the Settling Securities Plaintiff Class and procedures and requirements for the
submission of proofs of claim, the calculation of allowable claims, the
appropriate allocation among members of the Class, the plan of distribution, the
submission of members of the Settling Securities Plaintiff Class to the
jurisdiction of the Federal Court for purposes of resolving disputed claims, and
summary resolution, or disputed claims;
(x) for such other matters that are customarily included in
stipulations governing the settlement of securities class actions; and
(xi) that the Settling Securities Plaintiffs expressly warrant
that, in entering into the Settlement, they relied solely upon their own
knowledge and investigation, and not upon any promise, representation, warranty,
or other statement by the Settling Securities Defendants not expressly contained
in this Memorandum or the Securities Settlement Agreement itself.
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(b) Released Claims. The Securities Settlement Agreement shall contain
a full and general release to all Released Securities Parties, except as to
those claims that have been or could be asserted by the Settling Securities
Plaintiffs or members of the Settling Securities Plaintiff Class against
PricewaterhouseCoopers LLP, including the claims asserted in the January 24,
2003 complaint captioned Plumbers & Steamfitters, Local 137 Pension Fund and
Xxxx Xxxxx v. PricewaterhouseCoopers, LLP, Case No. H-03-0300. The releases set
forth in the Securities Settlement Agreement shall cover all claims both known
and unknown (except as to those claims asserted against PricewaterhouseCoopers),
with the Settling Securities Parties agreeing to waive the benefits of (S)1542
of the California Civil Code (or by any law or any state or territory of the
United States, or principle of common law that is similar, comparable or
equivalent to (S)1542 of the California Civil Code) which provides:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
(c) Securities Settlement Fund. In full and final settlement of all
claims asserted and all claims that could have been asserted against the
Settling Securities Defendants in the Consolidated Securities Action, the
Securities Settlement Agreement shall provide that the following contributions
will be made to the Securities Settlement Fund.
(i) Cash. Within 40 days of the execution of the Memorandum,
Hanover shall deposit or cause to be deposited $29.5 million (the "Securities
Settlement Cash") into a qualified settlement fund created by order of the
Federal Court consistent with Section 468B of the Internal Revenue Code or into
such other vehicle as Hanover and the Settling Securities Plaintiffs may agree
with Lead Counsel acting as escrow agent or its equivalent (the "Account"). The
Securities Settlement Cash will begin to bear interest at an annual rate of 10%
if it is not deposited on or before the twenty first (21st) day following
execution of the Memorandum. Hanover shall also make an additional deposit equal
to $3 million within 5 days of the earlier of: (A) a change of control; or (B) a
shareholder approval of a change of control, if such event occurs prior to 12
months following the date of final Court approval of the Settlement.
(ii) Common Stock. On or before July 31, 2003, or such other date
as GKH, Hanover, and Lead Plaintiffs' Counsel agree, Hanover, GKH and Lead
Plaintiff shall move the Federal Court to create a qualified settlement fund
under Section 468B of the Internal Revenue Code or create such other vehicle as
Hanover and the Settling Securities Plaintiffs may agree into which: (A) Hanover
shall contribute 2,500,000 shares of Hanover common stock (the "Hanover
Contributed Stock"), which will be registered, exempt from registration under
the Securities Act of 1933, or to be registered prior to their distribution by
or pursuant to the Securities Settlement Agreement to be distributed to a
transfer agent to be distributed to the Securities Plaintiff Class with Hanover
and Lead Plaintiffs' Counsel cooperating to take such actions as are
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necessary to comply with the rules of the New York Stock Exchange; and (B) GKH
shall contribute 2,500,000 shares of Hanover common stock (the "GKH Contributed
Stock"), which are registered, exempt from registration under the Securities Act
of 1933, or to be registered prior to their distribution by or pursuant to the
Securities Settlement Agreement to be distributed to a transfer agent to be
distributed to the Settling Securities Plaintiff Class, with Hanover and Lead
Plaintiffs' Counsel cooperating to take such actions as are necessary to comply
with the rules of the New York Stock Exchange. The GKH Contributed Stock and the
Hanover Contributed Stock are referred to collectively as the "Securities
Settlement Stock."
(iii) Note. Hanover shall issue a note (the "Note") after the
Effective Date of the settlement in a Principal Amount that has been determined
by reducing (or increasing) $15.75 million by one half of the product of: (A)
the excess of (or shortfall between) the closing price of Hanover common stock
on the trading day that this Memorandum is executed and $7 per share; and (B) 5
million.
A. The Principal Amount of the Note shall also decrease by
an amount equal to one-half of the product of: (A) the excess, if any, of the
closing price of the Hanover stock on the second trading session following the
public announcement of the execution of this Memorandum over the closing price
of Hanover stock on the day of execution of this Memorandum and (B) 5 million.
B. The Maturity Date of the Note shall be March 31, 2007. On
the maturity date, the Principal Amount together with accrued interest shall be
payable at an effective annual yield of 5% computed from the date of approval of
the Settlement by the Federal Court, provided, however, that if a change of
control occurs prior to March 1, 2007 and: (A) the change of control results in
Hanover's common stock being acquired for $12.25 or more then the Note is
extinguished; or (B) the change of control results in Hanover's common stock
being acquired for less than $12.25 then the Principal Amount together with any
interest that has accumulated shall be due and payable 30 days following the
change in control but not earlier than the Effective Date of the Securities
Settlement.
C. If at any time after the earlier of: (A) March 31, 2004
and (B) the first distribution to the Settling Securities Plaintiffs from the
settlement fund and prior to the Maturity Date, the average of the closing price
of Hanover common stock equals or exceeds $12.25 for any 15 consecutive trading
days, the obligation to perform on the Note is extinguished.
D. The Note shall be an unsecured note and shall not be
subordinated to any other unsecured obligations.
E. The Note shall be non-transferable, indivisible, and
non-assignable by the Settling Securities Plaintiff Class.
(d) Costs. All claims of the Settling Securities Plaintiff Class
against the Settling Securities Defendants in the Consolidated Securities
Action, all fees of
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counsel to the Settling Securities Plaintiff Class, and all other administrative
or other approved expenses of the Settlement, including all notice expenses and
escrow costs, shall be paid from the Securities Settlement Cash. An amount of
cash, not to exceed $100,000 shall be made available out of the Securities
Settlement Cash to the Lead Plaintiffs' Counsel for purposes of defraying the
actual cost of notice to the Settling Securities Plaintiff Class.
(e) Supplemental Securities Settlement Agreement. The Settling
Securities Parties will execute a mutually agreeable definitive Supplemental
Settlement Agreement to be executed within 5 days of execution of a Stipulation
of Settlement (the "Supplemental Securities Settlement Agreement"). The
Supplemental Securities Settlement Agreement will provide for the termination of
the Securities Settlement and the Securities Settlement Agreement at the sole
election of defendant Hanover in the exercise of its absolute discretion, in the
event that, after the execution of the Securities Settlement Agreement, a
certain number of the members of the Settling Securities Plaintiff Class owning
a specified amount of Hanover securities during the Class Period deliver timely
or otherwise valid requests for exclusion from the Class or initiate actions or
assert claims against one or more of the Settling Securities Defendants based in
whole or in part, on the released claims set forth in paragraph 2(b) above. The
Supplemental Securities Settlement Agreement shall be held strictly confidential
by the Settling Securities Parties and not publicly disclosed or filed with the
Federal Court (except required by law or as the Federal Court may order, or, as
is necessary to obtain enforcement or judicial construction thereof (in which
case it shall be filed under seal)).
(f) Attorneys' Fees. Counsel for Settling Securities Plaintiff Class
may apply to the Federal Court for an award of attorneys' fees and reimbursement
of all expenses incurred on behalf of the Securities Plaintiffs Class. Such fees
and expenses and interest shall be payable solely out of the Securities
Settlement Fund and shall be deducted from the Securities Settlement Fund prior
to the distribution to the members of the Settling Securities Plaintiff Class
following entry of an order by the Federal Court approving any fees and expenses
to Settling Securities Plaintiffs' counsel. Lead Plaintiffs' Counsel may
withdraw from the escrow account and allocate amongst counsel for the Securities
Plaintiffs the fees and expenses so awarded; provided, however, that in the
event that the order approving the fee and expense award is reversed or modified
on appeal, and in the event that Plaintiffs' counsel has received payment, such
counsel shall, within five (5) business days of the date which the fee and
expense award is modified or reversed, refund to the Escrow Account the fees and
expenses previously received by them in full or in any amount consistent with
such reversal or modification, plus the interest earned thereon through the date
of such refund. If a refund of settlement stock is required, either the stock or
the proceeds derived therefrom, if previously sold, shall be returned, provided
that Lead Plaintiffs' Counsel shall refund within 10 business days of any
modification or reversal of a fee or expense award, any fees and expenses and
stock (or proceeds) discussed above, which is not refunded by Plaintiffs'
counsel as directed above.
(g) Conditions to Securities Settlement. This Memorandum shall be null
and void and of no force and effect and: (A) the Securities Settlement Cash,
together
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with any interest therein, net of any actual costs incurred for notice expenses,
will be returned to Hanover if any of the conditions set forth in this paragraph
are not met and the Settling Securities Parties choose not to proceed with the
Securities Settlement; (B) the Securities Settlement Stock (or the proceeds from
any sale of such stock) will be returned to Hanover and GKH consistent with
their contributions to the Settlement Fund; and (C) the Note will be
extinguished. The consummation of the Securities Settlement contemplated herein
is subject to:
(i) the drafting and execution of a Securities Settlement
Agreement and the Supplemental Securities Settlement Agreement that is
acceptable to the Settling Securities Parties and of such pleadings and notices
as may be required to obtain the Federal Court's approval of the Settlement;
(ii) the funding of the Securities Settlement Fund as provided
above;
(iii) the implementation of the corporate governance provisions
as provided for in Exhibit A attached hereto;
(iv) preliminary approval by the Federal Court of the Settlement;
(v) certification of the Settling Securities Plaintiff Class for
settlement purposes only by the Court;
(vi) Hanover's determination not to exercise its termination
rights, if any, under the Supplemental Securities Settlement Agreement;
(vii) final approval by the Federal Court of the Securities
Settlement, except with respect to attorneys' fees requested by counsel to the
Settling Securities Plaintiff Class or as to the plan of allocation; and
(viii) a final judgment, which means a judgment entered by the
Federal Court, approving the Securities Settlement and dismissing all claims
that have been or could have been brought in the Consolidated Securities Action
as against the Settling Securities Defendants with prejudice and without costs
to any party, that has become final and no longer subject to further appeal or
review, whether by exhaustion of any possible appeal, lapse of time or
otherwise.
III. SETTLEMENT TERMS FOR SHAREHOLDER DERIVATIVE ACTIONS
(a) Derivative Settlement Agreement. The Settling Derivative Parties
shall use reasonable efforts, acting in good faith, to agree upon, execute,
submit to the Federal Court, and move the Federal Court for preliminary approval
of a mutually agreeable definitive settlement agreement (and such other
documentation as may be required in order to obtain final approval of the
settlement of the claims that have been or could be asserted in the Derivative
Actions (the "Derivative Settlement") by the Federal
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Court within 120 days of execution of this Memorandum (the "Derivative
Settlement Agreement"). The terms of the Derivative Settlement Agreement shall
be consistent with the terms of this Memorandum and shall provide:
(i) that the Settling Derivative Defendants have denied, and
continue to deny, any and all allegations contained in the Derivative Actions
and that they are entering into the Settlement in order to eliminate the burden,
expense, distraction and uncertainties of further litigation;
(ii) for the release of claims against the Released Derivative
Parties, pursuant to the terms set forth below;
(iii) that the Settling Derivative Plaintiffs expressly warrant
that, in entering into the Derivative Settlement, they relied solely upon their
own knowledge and investigation, and not upon any promise, representation,
warranty, or other statement by the Settling Derivative Defendants not expressly
contained in this Memorandum or the Derivative Settlement Agreement itself; and
(iv) that in full and final settlement of all claims asserted or
referred to in the Derivative Action, and all claims that have been and could be
asserted against the Settling Derivative Defendants in the Derivative Actions,
the Settling Derivative Parties agree to the following:
A. that the Board of Directors of Hanover adopt by
resolution, or other means as appropriate, the changes regarding corporate
governance as set forth in Exhibit A to the Memorandum;
B. that counsel for plaintiffs in the Settling Derivative
Actions were a material participant in the settlement negotiations and the
Settling Derivative Actions were a substantial factor in obtaining the following
benefits for the Company:
1. Payment of at least $28 million by Defendants' D&O
Insurers into the Securities Settlement Fund;
2. Contribution of 2,500,000 shares of Hanover common
stock by GKH as provided for in paragraph 2(a)(iii), above;
3. Substantial corporate governance enhancements,
including the appointment of additional independent directors and the regular
rotation of Hanover's outside audit firm, as detailed in Exhibit A attached
hereto;
(b) Xxxxxxx agrees to pay using proceeds contributed by its directors
and officers insurance, upon Court Approval of the Derivative Settlement, a fee
and expense award to counsel for the Derivative Plaintiffs of 75,000 shares of
Hanover common stock to be paid from the Hanover Contributed Stock and thereby
paid from the Securities Settlement Fund and $550,000, of which $75,000 will be
allocated and paid to counsel in the derivative action, Xxxx x. X'Xxxxxx, et
al., in exchange for the printing
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and mailing of appropriate court-directed individual notice to the shareholders
of Hanover entitled to receive such notice, as well as any other required or
appropriate notice to be made by publication or otherwise.
(c) For such other matters that are customarily included in
stipulations governing the settlement of derivative actions.
(d) Released Claims. The Derivative Settlement shall contain a full
and general release as to all Released Derivative Parties. The releases set
forth in the Derivative Settlement Agreement shall cover all claims both known
and unknown, with the Settling Derivative Parties agreeing to waive the benefits
of (S)1542 of the California Civil Code (or by any law or any state or territory
of the United States or principle of common law that is similar, comparable or
equivalent to (S)1542 of the California Civil Code) which provides:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
(e) Notice Costs. Plaintiffs' counsel in the Settling Derivative
Actions shall be responsible for funding and administering appropriate
court-directed individual notice to the shareholders of Hanover entitled to
receive such notice, as well as any other required or appropriate notice to be
made by publication or otherwise.
(f) Conditions to Settlement. This memorandum shall be null and void
and of no force and effect should any of these conditions not be met. The
consummation of the Derivative Settlement contemplated herein is subject to:
(i) the drafting and execution of a Derivative Settlement
Agreement that is acceptable to all parties hereto and of such pleadings and
notices as may be required to obtain the Federal Court approval of the
Derivative Settlement;
(ii) preliminary approval by the Federal Court;
(iii) final approval by the Federal Court;
(iv) a final judgment, which means a judgment entered by the
Federal Court, approving the Derivative Settlement and dismissing all the claims
that have been or could be asserted in the Derivative Actions as against the
Settling Derivative Defendants with prejudice and without costs to any party,
that has become final and no longer subject to further appeal or review, whether
by exhaustion of any possible appeal, lapse of time or otherwise;
(v) the payment of the fee and expense award to counsel for the
Derivative Plaintiffs; and
12
(vi) dismissal with prejudice of the Settling State Derivative
Action without additional consideration.
IV. SETTLEMENT TERMS FOR THE ERISA ACTIONS
(a) ERISA Settlement Agreement. The Settling ERISA Parties shall use
all reasonable efforts, acting in good faith, to agree upon, execute, and move
the Federal Court for the Southern District of Texas for preliminary approval of
a mutually agreeable definitive Settlement Agreement (and such other
documentation as may be required in order to obtain final approval of the
settlement of the claims that have been or could be asserted in the ERISA
Actions (the "ERISA Settlement") within 120 days of execution of this Memorandum
(the "ERISA Settlement Agreement"). The terms of the ERISA Settlement Agreement
shall be consistent with the terms of this Memorandum and shall provide:
(i) that the Settling ERISA Defendants have denied, and continue
to deny that they have liability as a result of any and all allegations
contained in the ERISA Actions and that they are entering into the Settlement in
order to eliminate the burden, expense, distraction and uncertainties of further
litigation;
(ii) for the creation of a settlement fund in the amount of
$1.775 million in cash (the "ERISA Settlement Fund"). The ERISA Settlement Fund
shall be funded by withdrawing cash from the Securities Settlement Fund;
(iii) for the release of claims against the Released ERISA
Parties pursuant to the terms set forth below;
(iv) that the Settling ERISA Plaintiffs expressly warrant that,
in entering into the Settlement, they relied solely upon their own knowledge and
investigation (to include the knowledge and investigation of counsel), and not
upon any promise, representation, warranty, or other statement by the Settling
ERISA Defendants not expressly contained in this Memorandum or the ERISA
Settlement Agreement itself;
(v) for such other matters that are customarily included in
stipulations governing the settlement of ERISA actions.
(b) Class Certification. Solely for purposes of settlement and
dismissal of the ERISA Actions, the Settling ERISA Parties shall seek
certification of the Settling ERISA Plaintiff Class by the Federal Court.
(c) Relief to Plan. The ERISA Settlement contemplated herein shall be
a settlement both of the claims made on a class action basis and a settlement of
the claims made on behalf of the Plan. It is contemplated that the Plan, acting
through its trustee(s) or other named fiduciaries, will be the immediate
recipient of the ERISA Settlement Fund (after deducting these from awarded fees
and costs) following consummation of the ERISA Settlement, and that the Plan
will, without charge to the Plan Participant, distribute the same to the
individual accounts of Plan Participants in a manner to be agreed by the
Settling ERISA Parties.
13
(d) Claim by Plan In Securities Class Action. The Plan, acting through
its trustee(s) or other named fiduciaries, shall make a claim in the
Consolidated Securities Action for recovery, through the Securities Settlement
Fund, on behalf of the Plan (and through the Plan on behalf of each Plan
Participant), with respect to each share of Hanover common stock (or other
security) purchased in or by the Plan during the Class Period. This claim is in
addition to the ERISA Settlement Fund, and it shall not be reduced by or on
account of the ERISA Settlement Fund.
(e) Released Claims. The ERISA Settlement Agreement shall contain a
full and general release of all Released ERISA Parties. The release shall cover
any and all rights, demands, causes of action, suits, matters, and issues that
have been, might have been or could be asserted against the Released ERISA
Parties in the ERISA Actions by or on behalf of the Settling ERISA Plaintiffs,
any past or present participant or beneficiary of the Plan, or the Plan itself,
in any court of competent jurisdiction, including, but not limited to, claims
for negligence, gross negligence, professional negligence, breach of duty of
care and/or breach of duty of loyalty and/or breach of duty of candor, fraud,
breach of fiduciary duty, mismanagement, corporate waste, malpractice, breach of
contract, negligent misrepresentation, violations of state or federal statutes,
rules or regulations and any unknown claims, arising out of or related, directly
or indirectly, in any way, to the allegations, transactions, facts, matters or
occurrences, representations or omissions involved, set forth, referred to or
that could have been asserted in the ERISA Actions, provided, however, that the
releases shall be limited to matters pertaining to the Plan that were or could
have been prosecuted on a Plan-wide or Class-wide basis. The releases set forth
in the ERISA Settlement Agreement shall cover all claims both known and unknown,
with the Settling ERISA Parties agreeing to waive the benefits of (S)1542 of the
California Civil Code (or by any law or any state or territory of the United
States or principle of common law that is similar, comparable or equivalent to
ss.1542 of the California Civil Code) which provides:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
(f) Structural and Equitable Relief. The Plan shall provide that each
Plan Participant shall have the right to direct the investment of his or her
Employer Contribution, upon the vesting thereof, in the same manner and among
the same investment alternatives as are available for the investment of employee
contributions to the Plan (provided, however, that the Employer Contributions
may continue to be made in the form of Company stock).
(g) Attorneys' Fees. Counsel for Settling ERISA Plaintiffs may apply
to the Court for an award of attorneys' fees and reimbursement of all expenses
incurred herein. Such fees and expenses and interest shall be payable solely out
of the ERISA Settlement Fund and shall be deducted from the ERISA Settlement
Fund prior to the distribution thereof to the Plan. Following entry of any order
by the Federal Court approving any fees and expenses to Settling ERISA
Plaintiffs' counsel, counsel for
14
Settling ERISA Plaintiffs may withdraw from the escrow account and allocate
amongst counsel for the Settling ERISA Plaintiffs the fees and expenses so
awarded, provided, however that in the event that the order approving the fee
and expense award is reversed or modified on appeal, and in the event that
Plaintiffs' counsel has received payment, such counsel shall, within five (5)
business days of the date which the fee and expense award is modified or
reversed, refund to the Escrow Account the fees and expenses previously received
by them in full or in any amount consistent with such reversal or modification,
plus the interest earned thereon through the date of such refund. If a refund of
settlement stock is required, either the stock or the proceeds derived
therefrom, if previously sold, shall be returned, provided that Counsel for
Settling ERISA Plaintiffs shall refund within 10 business days of any
modification or reversal of a fee or expense award, any fee and expense and
stock (or proceeds) discussed above, which is not refunded by Plaintiffs'
counsel as directed above.
(h) Award to Named Plaintiff. The named plaintiff in Xxxxxxx v.
Xxxxxxx, et al., Case No. H-03-1155 will submit to the Federal Court an
application for an award, in recognition of his services, not to exceed
$2,500.00. Such award, if approved, shall be paid from the ERISA Settlement Fund
prior to distribution thereof to the Plan.
(i) Notice Issues. The Plan shall be responsible for providing notice
to members of the Settling ERISA Plaintiff Class appropriate court-directed
notice, as well as any other required or appropriate notice to be made by
publication or otherwise.
(j) Conditions to the ERISA Settlement. The consummation of the ERISA
Settlement is subject to:
(i) that in full and final settlement of all claims asserted or
referred to in the ERISA Actions, and all claims that have been and could be
asserted against the Settling ERISA Defendants in the ERISA Actions, the
Settling ERISA Parties agree to the following:
A. The creation and funding of the ERISA Settlement Fund as
provided above;
B. The implementation of the structural and equitable relief
provided above.
(ii) the drafting and execution of an ERISA Settlement Agreement
that is acceptable to Settling ERISA Parties hereto and of such pleadings and
notices as may be required to obtain the Federal Court's approval of the
Settlement;
(iii) preliminary approval by the Federal Court;
(iv) final approval by the Federal Court;
(v) a final judgment, which means a judgment entered by the
Federal Court, approving the ERISA Settlement and dismissing all claims that
have been
15
or could have been brought in the ERISA Actions as against the Settling ERISA
Defendants with prejudice and without costs to any party, that has become final
and no longer subject to further appeal or review, whether by exhaustion of any
possible appeal, lapse of time or otherwise; and
(vi) This Memorandum shall be null and void and of no force and
effect should any of these conditions not be met.
V. OTHER TERMS
(a) Stock Splits, Stock Dividends and Reverse Stock Splits. The total
number of shares to be contributed to the Settlement Fund will be adjusted to
reflect any changes due to stock splits, stock dividends or reverse stock
splits. The per share prices detailed herein shall be adjusted to account for
stock splits, stock dividends, mergers, recapitalizations, reorganizations or
other corporate transactions involving Hanover.
(b) Costs. All costs, including those of Hanover's transfer agent,
incurred in issuing and distributing any Settlement Stock to the recipients
shall be borne by Hanover.
(c) Rights With Respect to the Settlement Stock. In order that the
Settlement Stock may be distributed to and be fully and freely traded by the
recipients without any restrictions, ten (10) days before the hearing date for
final approval of the Securities Settlement, Hanover shall provide Lead
Plaintiffs' Counsel with the written opinion of outside counsel substantially to
the effect: (a) that the Settlement Stock will be issued in compliance with the
registration requirements of (S)5 of the Securities Act of 1933 or will be
issued in reliance upon an exemption therefrom; (b) that the Settlement Stock is
fully tradeable without any restriction after distribution (except that
affiliates of Hanover may be required to sell in accordance with Rule 144
promulgated under the Act); and (c) that such shares are otherwise fully paid,
non-assessable and free from all liens and encumbrances.
(d) Bar Order. The Settlement Stipulation in each of the Actions shall
limit the ability of any non-settling person, including PricewaterhouseCoopers,
to sue, seek indemnification from or otherwise seek contribution from any of the
Settling Parties and shall provide for such other limitations as are appropriate
under and consistent with the provisions of the Private Securities Litigation
Reform Act. In addition, the Settlement Stipulation in each of the Actions shall
limit the ability of any of the Settling Parties and/or Released Parties from
suing, seeking indemnification from or seeking contribution from any of the
other Settling Parties and/or Released Parties with respect to any matter
relating to, arising from, or in any way connected to the Settlement.
(e) Press Release. Settling Plaintiffs and Hanover agree to consult
with each other prior to issuing their initial public announcement or public
statement concerning the Settlement.
16
VI. CONDITIONS TO SETTLEMENT
(a) Bank Approval: Hanover's obligation to conclude the Settlement is
specifically conditioned on obtaining any necessary approval from its banks or
other lenders, which it shall seek in good faith.
(b) Performance By Third Parties: Hanover's obligation to consummate
the Settlement is specifically conditioned on (1) Hanover's directors and
officers insurance carriers providing the funding that each have agreed to
perform through separate agreements with Hanover; and (2) GKH's performance
under this Memorandum and under a separate agreement between GKH and Hanover;
provided, however, that at Hanover's sole election it may waive the performance
of any or all of the above parties and consummate the Settlement on the terms
set forth in this Memorandum. GKH's obligation to consummate the Settlement is
conditioned on Hanover's performance under the Settlement, whose terms are to be
consistent with this Memorandum, including, if applicable, Hanover's performance
in lieu of directors and officers insurance carrier.
(c) Cross-Contingency: Hanover may, in its sole discretion, terminate
any or all of the (1) Securities Settlement Agreement, (2) Derivative Settlement
Agreement, and (3) ERISA Settlement Agreement, in the event that the Federal
Court does not approve the settlement of all of such Actions; provided, however,
that nothing herein shall inhibit Hanover from consummating the settlement of
any of the Actions despite the disapproval of the settlement of any other
Actions.
(d) Specific Performance: The Settling Parties acknowledge that the
failure to complete the Settlement under the terms of this Memorandum will
result in irreparable harm that cannot be adequately compensated through money
damages and that each therefore agrees that specific performance is the
appropriate remedy for breach of this Memorandum, provided, however, that only
the Settling Plaintiffs, Hanover and GKH may seek relief under this section.
(e) Confirmatory Discovery. Following execution of the Memorandum, the
Settling Plaintiffs and Settling Defendants will conduct such additional
reasonable discovery, which will be completed within 120 days from execution of
the Memorandum, as the Parties agree is necessary and appropriate to confirm the
fairness, reasonableness and adequacy of the terms of the Settlement; provided,
however, that such confirmatory discovery period may be extended by agreement of
the Settling Parties if such extension is necessary to ensure that the
Settlement is fair, reasonable and adequate.
VII. GENERAL TERMS
(a) Further Documentation. The Settling Securities Parties, the
Settling Derivative Parties and the Settling ERISA Parties acknowledge that this
Memorandum does not set forth all of the substantive terms necessary and
appropriate for a complete and final Settlement of the Consolidated Securities
Action or the Derivative
17
and ERISA Actions, and undertake to work in good faith to memorialize such
terms, which shall be embodied in the Securities Settlement Agreement, the
Derivative Settlement Agreement and/or the ERISA Settlement Agreement.
(b) Amendments. This Memorandum and all documents executed pursuant
hereto and thereto, shall constitute a legally binding and enforceable
obligation on the part of each of the parties hereto and their
successors-in-interest, subject only to their terms and conditions set forth
herein and therein. This Memorandum may be amended only by a written instrument
signed by each of the respective parties hereto, or their counsel acting on
their behalf.
(c) Entire Agreement. This Memorandum and all documents executed
pursuant hereto and thereto, constitute the entire agreement between the parties
with respect to the matters discussed herein and supersedes any and all prior
negotiations, discussions, agreements or undertakings, whether oral or written,
with respect to such matters. This Memorandum shall be deemed drafted equally by
all parties hereto.
(d) Counterparts. This Memorandum may be executed in counterparts by
any of the signatories hereto, and as so executed shall constitute one
agreement.
18
/s/ XXXXX X. XXXXXXX Date: 7/18/03
---------------------------- ------------------------
Xxxxx X. Xxxxxxx
XXXXXX XXXXXXX & XXXX LLP
0000 X Xxxxxx, X.X.
Washington, D.C. 00000-0000
Telephone: 000-000-0000
Facsimile: 202-721-4646
Counsel for Defendant Hanover Compressor
Corporation and Xxxx Xxxxxx
/s/ XXXXXX X. XXXXXXX Date: 7/14/03
---------------------------- ------------------------
Xxxxxx X. Xxxxxxx
Xxxxxxx Xxxxxxxxxx
Xxxxx X. Xxx
XXXXXXX XXXXX XXXXXXX XXXXX & XXXXXX LLP
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling Securities Plaintiffs and
Lead Plaintiffs Pirelli Armstrong Tire,
Retiree Medical Benefits Trust, Plumbers &
Steamfitters, Local 137 Pension Fund,
X. Xxxxxx Xxxxx, 720 Capital Management,
LLC and Specialists DPM
/s/ XXXX X. XXXXXX Date: 7/10/03
---------------------------- ------------------------
Xxxx X. Xxxxxx
XXXXX & XXXXXXXX
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling Derivative Plaintiffs
Xxxxx Xxxx, Xxxxx Xxxxxxxx and Xxxxxxx
Xxxxxx
19
/s/ XXXXX X. XXXXXXXXX Date: 7/11/03
---------------------------- ------------------------
Xxxxx X. Xxxxxxxxx
BY PERMISSION
XXXX XXXXXX
XXXXXXX & XXXXXXXXX, LLP
00000 Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxx Xxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling Derivative Plaintiff
Xxxxxxx Xxxxxx
/s/ XXXX XXXXXXXXX Date: 7/11/03
---------------------------- ------------------------
Xxxx Xxxxxxxxx
XXXXX & XXXXX, LLC
P.O. Box 000
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telephone: 0-000-000-0000
Facsimile: 0-000-000-0000
Counsel for Settling Derivative Plaintiff
Xxxxx Xxxxxxxx
/s/ XXXXX X. XXXXXXX Date: 7/11/03
---------------------------- ------------------------
Xxxxx X. Xxxxxxx
XXXXXXX XXXXX & XXXX, LLP
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling Derivative Plaintiff
Xxxxx Xxxx
20
/s/ XXXXXX XXXXXXXX Date: 7/11/03
---------------------------- ------------------------
Xxxxxx Xxxxxxxx
XXXXXXXX & XXXX LLP
Two Embarcadero Center
Suite 0000
Xxx Xxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling Derivative Plaintiffs
Xxxx X. Xxxxxxx, Xx.
/s/ XXXX X. XXXXXXX Date: 7/10/03
---------------------------- ------------------------
Xxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
XXXXXXX XXXXXXX LLP
1509 Louisiana, Suites C & D
Little Rock, AR 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling Derivative Plaintiff
Xxxxxxx Family LLC
/s/ XXXXX XXXXXX Date: 7/15/03
---------------------------- ------------------------
Xxxxx Xxxxxx
XXXXXX LAW FIRM
000 X. 0xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling ERISA Plaintiff
Xxxxx Xxxxxx Xxxxxxx
21
illegible (by permission) Date: 7/18/03
---------------------------- ------------------------
Xxxxxx Xxxxx
XXXXXXXX & XXXXX, L.L.P.
000 Xxxxxxxxx Xxx., 000
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling ERISA Plaintiffs
Xxx Xxxxxxxxxxxx and Xxxxx Xxxxxxx
/s/ XXXXXX X. XXXXXX Date: 7/18/03
---------------------------- ------------------------
Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxx
Xxxx X. Xxxxx
XXXXXXXXX & BARROWAY
Three Bala Xxxxx Xxxx, Xxxxx 000
Xxxx Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 610-667-7056
Counsel for Settling ERISA Plaintiff
Xxx Xxxxxxxxxxxx
/s/ XXXX XXXXX Date: 7/15/03
---------------------------- ------------------------
Xxxx Xxxxx
XXXXXXX & XXXXX, LLC
000 Xxxxxxx Xxxxxxxxx
Xxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling ERISA Plaintiff
Xxxxx Xxxxxxx
22
/s/ XXXXXX X. XXXXX Date: 7/10/03
---------------------------- ------------------------
Xxxxxx X. Xxxxx
Xxxxx X Xxxxxxxxxxxx
XXXXXX XXXXXX XXXXX &
XXXXXXXX
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Defendant Xxxxxxx X. Xxxxxxxx
/s/ XXXXXX X. XXXXXXX, XXX Date: 7/8/03
---------------------------- ------------------------
Xxxxxx X. Xxxxxxx, III
XXXXXXX LLP
0000 X Xxxxxx, X.X.
Washington, DC 00000-0000
Telephone: 000-000-0000
Facsimile: 202-261-3333
Counsel for Defendant Xxxxxxx X. Xxxxx
/s/ XXXX X.X. XXXXXXX Date: 7/15/03
---------------------------- ------------------------
Xxxx X.X. Xxxxxxx
XXXX XXXXXX & XXXXXXX
One Houston Center
0000 XxXxxxxx Xx., Xxxxx 0000
Xxxxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 713-951-3720
Counsel for Defendant Xxxxxxx X. XxXxxx
23
/s/ XXXXX XXXXXX Date: 7/10/03
---------------------------- ------------------------
Xxxxx Xxxxxx
XXXXXX XXXXXX & XXXXXXX, L.L.P.
Bank of America Center
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 713-221-2320
Counsel for Defendants Xxxxxx X. Xxxxx,
Xxx Xxxxxxx, Xx., Xxxxxx X. Xxxxxxxx,
Xxxx X. Xxxx and Xxxxx X. Xxxxxxxxx
/s/ XXXXXX X. XXXXX, XX. Date: 7/11/03
---------------------------- ------------------------
Xxxxxx X. Xxxxx, Xx.
THE XXXXXX LAW FIRM
Three Riverway, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Defendant
Xxxxxxx X. X'Xxxxxx
/s/ XXXXXX X. XXXXXXXXXX Date: 7/14/03
---------------------------- ------------------------
Xxxxxx X. Xxxxxxxxxx
SKADDEN, ARPS, SLATE, XXXXXXX
& XXXX LLP
Xxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Defendants Xxxxxx X. Xxxxxxxx,
Xxxxxx X. Xxxx and X. Xxx Xxxxxxx
24
/s/ XXXXXXX X. XXXXX Date: 7/15/03
---------------------------- ------------------------
Xxxxxxx X. Xxxxx
XXXX, XXXXX, RIFKIND, XXXXXXX &
XXXXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for GKH
25
HANOVER COMPRESSOR
CORPORATE GOVERNANCE SETTLEMENT TERM SHEET
Within 30 days following entry of an order approving the settlement of the
Action, the Company's Board of Directors will adopt resolutions or amendments to
the Company's By-Laws or Articles of Incorporation to ensure adherence to the
following Corporate Governance Policies; provided, however, that with respect to
any policy affecting the composition of the Board of Directors, the Company, at
its sole election, may elect to make any required change through a vote of
shareholders at the annual meeting following the next election of directors
after the entry of the final order approving settlement; provided further that
if any such election is not at least 45 days after the approval of the final
settlement then such changes may be deferred until the next annual election of
directors. The Company agrees that the governance provisions included herein
will remain in effect for five years or such earlier time as there is a Change
in Control of the Company (as defined in the Company's 2003 Stock and Incentive
Plan); provided, however, that any proposed guideline can be altered or removed
if the Board, in good faith and upon the advice of counsel, and after
consultation with Plaintiffs' settlement counsel, who agrees to act reasonably
and in good faith, determines that such guideline conflicts with or is
substantially redundant with any law, regulation or rule (including rules of the
New York Stock Exchange or other exchange or quotation system on which the
Company's stock is listed or traded (collectively, herein, "NYSE")), or
conflicts with or is substantially redundant with any amendment to the Company's
articles of incorporation approved by the Company's shareholders.
I. Board of Directors
A. Director Independence:
. Every director standing for election shall stand for a one-year
term.
. No person who has reached the age of 72 shall be eligible for
election or re-election as a director of the Company.
. At least a majority of the Board, including the Chairman of the
Board, shall be "independent directors," as defined below;
provided, however, that within 12 months two-thirds of the Board
shall be "independent directors" as defined below.
. To be deemed "independent" in any calendar year, a director would
have to satisfy the following qualifications:
(a) has not been employed as an elected officer of the Company
or its subsidiaries or affiliates (defined for purposes of
this settlement term sheet as any individual or business
entity that owns at least
A-1
12.5% of the securities of the Company having ordinary
voting power) within the last five calendar years;
(b) has not received, during the current calendar year or any of
the three immediately preceding calendar years,
remuneration, directly or indirectly, other than de minimus
remuneration, as a result of service as, or compensation
paid to an entity affiliated with the director that serves
as, (i) an advisor, consultant, or legal counsel to the
Company or to a member of the Company's senior management;
or (ii) a significant customer or supplier of the Company;
provided, however, that any director who is a current member
of the Board at the time that this MOU is executed and
within the last three years has retired from an entity that
would otherwise fit the definition included in (i) or (ii)
of this paragraph shall not be rendered non-independent by
virtue of remuneration he or she received prior to joining
the Board of the Company;
(c) has no personal services contract(s) with the Company, or
any member of the Company's senior management;
(d) is not affiliated with a not-for-profit entity that receives
significant contributions from the Company;
(e) during the current calendar year or any of the three
immediately preceding calendar years, has not had any
business relationship with the Company for which the Company
has been required to make disclosure under Regulation S-K of
the SEC, other than for service as a director or for which
relationship no more than de minimus remuneration was
received in any one such year; provided, however, that the
need to disclose any relationship that existed prior to a
director joining the Board shall not in and of itself render
the director non-independent;
(f) is not employed by a public company at which an executive
officer of the Company serves as a director,
(g) has not had any of the relationships described in
subsections (a)-(f) above, with any affiliate of the
Company;
(h) is not a member of the immediate family of any person
described in subsections (a)-(g) above; and
(i) a director is deemed to have received remuneration (other
than remuneration as a director, including remuneration
provided to a non-executive Chairman of the Board, Committee
Chairman, or Lead Director), directly or indirectly, if
remuneration, other than de minimis remuneration, was paid
by the Company, its subsidiaries, or affiliates, to any
entity in which the director has a
A-2
beneficial ownership interest of five percent or more, or to
an entity by which the director is employed or self-employed
other than as a director. Remuneration is deemed de minimis
remuneration if such remuneration is $60,000 or less in any
calendar year, or if such remuneration is paid to an entity,
it (i) did not for the calendar year exceed the lesser of $5
million, or five percent (5%) of the gross revenues of the
entity; and (ii) did not directly result in a material;
increase in the compensation received by the director from
that entity.
. The Company shall adopt share ownerships guidelines for its
directors that are designed to align the interests of the Board
with those of shareholders, taking into account that share
ownerships requirements must ensure that Board members have a
sufficient stake in the Company to share in the financial
fortunes of shareholders while also considering the appropriate
financial planning and needs of individual directors. At least
50% of directors' annual fees shall be paid in stock, provided
that this amount may be reduced by any restricted stock award
granted to a director.
. The Board shall hold an executive session at least twice each
year at which employee directors are not present.
B. The Nominating Committee, the Compensation Committee and the Audit
Committee of the Board of Directors shall each be composed entirely of
independent directors.
C. The offices of Chairman of the Board and Chief Executive Officer shall
be held by separate individuals; provided, however, that if in the
future the Chairman of the Board is not-independent then a Lead
Director who is independent shall be chosen (as noted below) and under
such circumstances the Chairman of the Board and Chief Executive
Officer may be held by the same individual.
D. The Compensation Committee shall recommend for review by the Board
annual and long-term performance goals for the Chief Executive Officer
and evaluate his performance against such goals and other relevant
factors such as the performance of the Company's peer companies.
E. During its consideration of the compensation of the Chief Executive
Officer, the Compensation Committee shall meet in executive session,
without the Chief Executive Officer.
F. The Board's Committees shall have standing authorization, on their own
decision, to retain legal and/or other advisors of their choice, which
advisors shall report directly to the Committee.
G. The Board of Directors shall adopt a resolution setting forth the
following compensation principles:
A-3
(a) Compensation arrangements shall emphasize pay for
performance and encourage retention of those employees who
enhance the Company's performance;
(b) Compensation arrangements shall promote ownership of the
Company stock to align the interests of management and
stockholders;
(c) Compensation arrangements shall maintain an appropriate
balance between base salary and long-term and annual
incentive compensation;
(d) In approving compensation, the recent compensation history
of the executive, including special or unusual compensation
payments, shall be taken into consideration;
(e) Cash incentive compensation plans for senior executives
shall link pay to achievement of financial goals set in
advance by the Compensation Committee;
(f) The Nominating and Corporate Governance Committee shall
review annually the compensation of directors.
H. The Board of Directors shall adopt a resolution broadening the mandate
of the Nomination Committee to make it the Nominating and Corporate
Governance Committee, which Committee's functions shall include:
(a) The Nominating and Corporate Governance Committee, in
consultation with the Chairman of the Board and the Chief
Executive Officer, shall be responsible for periodic review
and interpretation of the Company's Corporate Governance
Policies and the Nominating and Corporate Governance
Committee Guidelines, as well as consideration of other
corporate governance issues that may, from time to time,
merit consideration by the entire Board;
(b) The Nominating and Corporate Governance Committee, in
consultation with the Chairman of the Board and the Chief
Executive Officer, shall consider and make recommendations
to the Board concerning the appropriate size and needs of
the Board;
(c) The Nominating and Corporate Governance Committee, in
consultation with the Chairman of the Board and the Chief
Executive Officer, shall consider candidates to fill vacant
Board positions. Candidates shall be selected for their
character, judgment, business experience, time commitment,
and acumen. Final approval of a candidate shall be
determined by the full Board;
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(d) The Board shall establish performance criteria for itself
and evaluate itself and individual members on a regular
basis. Board evaluation shall include an assessment of
whether the Board has the necessary diversity of skills,
backgrounds, experiences, etc., to meet the Company's
ongoing needs. Individual director evaluations shall include
high standards for in-person attendance at Board and
committee meetings and consideration of absences; and
(e) The Nominating and Corporate Governance Committee shall
consider policies relating to the Board and directors,
including committee structure and size, share ownership, and
retirement and resignation.
I. The Board shall designate an independent director to act in a lead
capacity to coordinate the other independent directors, as described
below. The Lead Director may also serve as Chairman of the Board. The
Lead Independent Director is responsible for coordinating the
activities of the independent directors. In addition to the duties of
all Board members (which shall not be limited or diminished by the
Lead Independent Director's role), the specific responsibilities of
the Lead Independent Director are to advise the Chairman of the Board
(if the Lead Director is not also the Chairman of the Board) or to
undertake the following:
(a) determine an appropriate schedule of Board meetings, seeking
to ensure that the independent directors can perform their
duties responsibly while not interfering with the flow of
the Company's operations;
(b) prepare agendas for the Board and Committee meetings;
(c) assess the quality, quantity, and timeliness of the flow of
information from the Company's management that is necessary
for the independent directors to effectively and responsibly
perform their duties, and although the Company's management
is responsible for the preparation of materials for the
Board, the Lead Independent Director may specifically
request the inclusion of certain material;
(d) direct the retention of consultants who report directly to
the Board;
(e) ensure that the Governance Committee oversees compliance
with and implementation of the Corporate Governance Policies
and ensures that the Chairman of the Governance Committee
oversees the process to recommend revisions to the Corporate
Governance Policies;
(f) coordinate, develop the agenda for, and moderate executive
sessions of the Board's independent directors, and act as
principal
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liaison between the independent directors and the Chairman
of the Board and/or Chief Executive Officer on sensitive
issues;
(g) evaluate, along with the members of the Compensation
Committee and the full Board, the Chief Executive Officer's
performance and meet with the Chief Executive Officer to
discuss the Board's evaluation; and
(h) recommend the membership of the various Board Committees, as
well as selection of the Committee Chairs.
X. the Lead Independent Director shall have the authority to retain such
counsel or consultants as the Lead Independent Director deems
necessary to perform her responsibilities.
K. At each regularly scheduled Board of Directors meeting, the Company's
Chief Financial Officer or his designee shall provide a report that
includes year-to-date financial results and quarterly or
quarter-to-date financial results that include the Company's financial
condition and prospects, including but not limited to, as appropriate
under the circumstances, a discussion of all reasons for material
increases in expenses and liabilities, if any, and material decreases
in revenues and earnings, if any, including any modification or
adjustment of reserve accounts or contingencies and management plans
for ameliorating or reversing such negative trends and the success or
failure of any such plans presented in the past.
II. Shareholder Nominated Directors
A. The Board through its bylaws or otherwise shall establish a procedure
for shareholders to nominate one or two directors as detailed below.
1. Initial Review Process. As soon as reasonably practicable after
the execution of a Memorandum of Understanding attaching as an
exhibit this Corporate Governance Term Sheet, Lead Plaintiffs'
Counsel (or their designee), in coordination with the Chairman of
the Board of Hanover (or his designee) shall seek to identify
potential directors. In undertaking this process, Lead
Plaintiffs' Counsel (or their designee), in coordination with the
Chairman of the Board of Hanover (or his designee) shall contact
each individual or entity holding more than 1% (but less than
10%) of the Company's common stock for the purpose of requesting
that such shareholder or shareholders provide the name or names
of candidates for Hanover's Board of Directors. Lead Plaintiffs'
Counsel, in coordination with the Chairman of the Board, shall
conduct an appropriate review (including background information
and interviews of prospective candidates) and submit the names of
the individuals determined to be qualified (as measured against
criteria to be established by Hanover's Board of Directors in the
exercise of their business judgment) to the Nomination and
Corporate Governance Committee for review.
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2. Initial Selection Process. Hanover's Nominating and Corporate
Governance Committee shall review each of the candidates
submitted to it by Lead Plaintiffs' Counsel and select from among
them the two determined by the Committee in the exercise of its
business judgment as the most appropriate for being added to
Hanover's Board. In the event that two are not selected from
those presented to the Nominating and Corporate Governance
Committee, Lead Plaintiffs' Counsel shall be advised of this
determination, including the reasons for it, and shall be given
an opportunity (utilizing the process noted above) to continue to
submit qualified candidates until two candidates are identified.
Once two candidates are identified, the Nominating and Corporate
Governance Committee shall recommend to the Board, and the Board
shall, subject to its fiduciary duties, elect the two candidates.
3. Vacancies Among Selected Directors. Should either or both of the
directors selected pursuant to paragraphs (1) and (2) hereof
cease to be on the board because of death, resignation,
disability or removal, Lead Plaintiffs' Counsel shall have the
right to initiate and participate in the selection of a
replacement director or directors following the procedure set
forth in paragraphs (1) and (2) above.
4. Additional Term of Selected Directors. After their initial
election to the Board, the two shareholder nominated directors
shall be nominated by the Board at the next annual election at
which directors are elected to serve for an additional one year
term; provided, however, that in the event either or both of such
directors die, resign, or are disabled or removed, or if the
Board determines reasonably and in good faith that they should
not be nominated, then Lead Plaintiffs' Counsel shall have the
right to initiate and participate in the selection of a
replacement director or directors following the procedure set
forth in paragraphs (1) and (2) above.
5. Continued Election of Single Shareholder Nominated Director.
After the election of the two shareholder nominated directors as
specified in paragraph (4) above, who shall serve for a term of
one year, at the next annual election of directors the Board,
subject to its fiduciary duties, shall only be obligated to
nominate, in its sole discretion, one shareholder nominated
director; provided, however, that nothing herein will prevent the
Board from nominating both shareholder nominated directors;
provided, further that in the event either or both of such
directors die, resign, or are disabled or removed, or if the
Board determines reasonably and in good faith that they should
not be nominated, then Lead Plaintiffs' Counsel shall have the
right to initiate and participate in the selection of a
replacement director or directors following the procedure set
forth in paragraphs (1) and (2) above.
III. Internal Audit Function
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A. Within six months of final approval of the settlement, the Company
shall implement an intensive internal audit function. The Internal
Auditor, who shall be appointed by the Board and who will report to
the Audit Committee at least twice a year, shall monitor the Company's
internal control environment, revenue recognition practices and its
accounting practices. The Internal Auditor shall be responsible for
devising an Internal Audit Plan for each fiscal year which will be
presented to the Audit Committee of the Board of Directors. The
Internal Audit Plan shall include assessment of the internal controls
environment in order to ensure that appropriate financial reporting
procedures are in place and being followed by the Company's employees.
Appropriate Company operations as dictated by the Internal Audit Plan
shall be subject to an internal audit review each year. A written
report shall be prepared for each internal audit performed describing
the internal audit's findings, opinions and recommendations, if any.
As appropriate, after review and comment from potentially impacted
operational departments, these written reports (together with any
response from potentially affected departments) shall be directed to
the Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, General Counsel, and the Audit Committee for their review,
and, if necessary, remedial action.
IV. Revenue Recognition Policy
A. The Chief Executive Officer and Chief Financial Officer shall be
responsible for ensuring that the Company's revenue recognition policy
conforms to the requirements of Generally Accepted Accounting
Principles ("GAAP"), as currently in effect or as amended, and is
implemented and utilized throughout the Company. The Chief Executive
Officer and Chief Financial Officer shall report to the Board of
Directors or the Audit Committee on a semi-annual basis regarding the
implementation and operation of this policy. The Chief Executive
Officer and Chief Financial Officer shall ensure that the Company
revenue recognition policy is distributed to each Company employee who
records or reviews the recording of revenue. Any questions regarding
that policy, or its application, shall be directed to the Company's
Chief Financial Officer, who shall, as appropriate, inform the Chief
Executive Officer.
B. To the extent net income was benefited in the aggregate for a quarter
by the modification or adjustment of any reserve or contingency
amounts, of more than the one percent of quarterly revenue such
modification or adjustment shall be clearly disclosed in the quarterly
statements.
V. Stock Options
A. Subject to the adoption of guidelines by the FASB and compliance with
any such guidelines, the Company will either fully expense all stock
options going forward or shall provided sufficient disclosure in its
periodic reports to allow shareholders to determine the expense impact
of granted options.
VI. Annual Audit of Financial Statements by Independent Auditor
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A. So long as the Company remains a publicly traded company, the Company
shall engage an independent auditing firm to perform an annual audit
of its financial statements. The annual audit will encompass, as
determined appropriate by the Chief Financial Officer and such
independent auditing firm, a review of the financial results reported
by each Company office to the Company headquarters. A written report
of the results of each annual audit, including any findings, opinions
or recommendations by the independent auditor shall be provided to the
Chief Executive Officer, the Chief Operating Officer, the Chief
Financial Officer and the Audit Committee of the Board of Directors
for review and remedial action, if necessary.
B. The Company's independent auditing firm may not perform any consulting
work for the Company, other than tax consulting work.
C. The Company shall rotate its independent auditing firm on or before
March 1, 2008, and five years thereafter.
VII. Xxxxxxx Xxxxxxx Controls
A. The Board of Directors will appoint an officer of the Company who will
be responsible for effecting compliance with the Company's stock
trading and market communications policy. That individual will be
designated the "Trading Compliance Officer," and will be responsible
for developing (with Board involvement), presenting to the Board for
approval, and monitoring and updating (with Board involvement and
approval) a comprehensive program (the "Trading Compliance Program")
designed to ensure compliance with the Company's trading policies. The
Board will be responsible for direct oversight of the Trading
Compliance Program and the Trading Compliance Officer, and the outside
director (non-management) members of the Board will have direct access
to the Trading Compliance Officer, including the opportunity to meet
with the Trading Compliance Officer outside the presence of any other
member of management. At least once yearly, the outside director
members of the Board will receive a report from the Trading Compliance
Officer outside the presence of any other members of management.
B. The Trading Compliance Program shall contain provisions with respect
to transactions in the Company's securities by directors and officers
of the Company which are no less restrictive than those set forth in
the New York Stock Exchange Listed Company Manual and shall take into
account applicable federal securities laws and regulations.
C. During the pendency of any Company-funded open market stock buy-back
program, no insider shall be permitted to sell stock.
D. Any corporate director or elected officer who acquires Company shares
via option exercise, of options granted after Settlement Approval,
must retain 33% of the net shares acquired, after taking into account
the sale of shares to pay taxes and the
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option exercise price, for at least 12 months or such earlier time as
the individual ceases to be a director of or an executive officer of
the company as a result of death, resignation, termination or other
reason.
E. The Company shall require the public disclosure of all sales or
purchases of the Company's stock by any corporate executive officers
or directors within 48 hours of such purchase or sale. Using Company
stock or options to secure any loan to an executive officer or
director or engaging in a swap, forward contract or other similar
contract involving an executive officer's or director's stock shall be
considered a "sale" and so disclosed. The Company will take reasonable
steps to ensure that all directors and officers file all trading forms
required by them to be filed by the SEC concerning trading by
directors, officers, and executive employees of the Company.
F. Failure to comply with the Company's trading policy will result in
appropriate sanctions, including disgorgement by the individual to the
Company of all profits from the transaction, termination, or other
appropriate disciplinary action.
G. No corporate officer or director shall directly or indirectly "short"
the Company's stock or engage in "put" or call transactions involving
the Company's stock.
VIII. Stock Options/Change-of-Control
A. No stock option plan for corporate executives or directors may be
adopted without a shareholder vote. Previously established stock
option plans may not be modified to reduce stock option exercise
prices or increase the number of shares available under the plan
without a shareholder vote.
B. No corporate executive compensation plan adopted after the date of the
final approval of the settlement may include any "change-of-control"
definition that does not require the actual sale or merger of the
Company to trigger a "change-of-control." A vote in favor of a merger
or sale of the Company shall not constitute a "change-of-control."
Provided, however, that any executive compensation plan may continue
to define change of control broadly to include, among other things
instances where (i) the Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other
than to an entity wholly owned, directly or indirectly, by the
Company), (ii) there is consummated a merger, consolidation,
re-capitalization, reorganization or other similar transaction
involving the Company, other than one in which more than 50% of the
total voting power of the surviving entity outstanding immediately
after such transaction is beneficially owned by the holders of the
outstanding voting securities of the Company immediately prior to such
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction, (iii) the Company is to be dissolved and liquidated,
(iv) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or
control
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(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company' voting stock (based upon voting
power).
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