Exhibit 10.1
MEMORANDUM OF UNDERSTANDING
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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 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
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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, Xxxx Xx. X-00-0000, Xxxxxx 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; Steves 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, 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
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/1/ All capitalized terms not otherwise defined shall have the meaning set
forth in Section I below.
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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
Pirelli Xxxxxxxxx Tire, Retiree Medical Benefits Trust, Plumbers & Steamfitters,
Local 137 Pension Fund, O. 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 on behalf of themselves and all other similarly
situated, in the Federal Court, including Xxxxxxx v. Hanover, et al., Case No.
H-03-1155; (the "Settling ERISA Action" brought by the "Settling ERISA
Plaintiff"); Angleopoulos v. Hanover Compressor, et al., Case No. H-03-1064; and
Freeman v. Hanover Compressor, et al., Case No. H-3-1095; (collectively, the
"ERISA Actions" brought by the "ERISA Plaintiffs");
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 Consolidated Securities Action, the Derivative Actions, and the
ERISA Actions (together, 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:
1. DEFINITIONS
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The following additional definitions shall apply in this Memorandum:
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(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 the Settling ERISA Plaintiffs, the
Settling 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, attorneys and
advisors, and each of their successors, heirs, assigns, executors, personal
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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 Plaintiff, 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.
(l) "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 Settling ERISA Action.
(n) "Settling Derivative Defendants" means Xxxxxxx X. X'Xxxxxx,
Xxxxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxx, Xxxxxxx X. XxXxxx, Xxx Xxxxxxx, Jr.,
Xxxxxx X. Xxxxxxxx, Xxxx X. Xxxx, Xxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxxxxx, Xxxxxx
X. Xxxx, I. Xxx Xxxxxxx, Xxxxxxx X. Xxxxx and Hanover.
(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 Hanover, 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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(s) "Settling ERISA Plaintiffs" means the ERISA Securities Plaintiff
Class, including the named class representative Xxxxx Xxxxxx Xxxxxxx.
(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 Plaintiff.
(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, O. 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.
2. SETTLEMENT TERMS FOR THE CONSOLIDATED SECURITIES ACTION
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(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
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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 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 these 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
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(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.
(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 ss.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.
(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. Within 40 days of the execution of this
Memorandum, 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
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agent to be distributed to the 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; 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
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Securities Defendants in the Consolidated Securities Action, all fees of 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 with any interest therein, net of any actual costs incurred for notice
expenses, will be returned to Hanover if any of the
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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 Plaintiffs 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.
3. SETTLEMENT TERMS FOR SHAREHOLDER DERIVATIVE ACTIONS
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(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 Court
within 120 days of execution of this Memorandum
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(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) Hanover 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
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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 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 ss.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.
(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;
12
(v) the payment of the fee and expense award to counsel for
the Derivative Plaintiffs; and
(vi) dismissal with prejudice of the Settling State
Derivative Action without additional consideration.
4. SETTLEMENT TERMS FOR THE ERISA ACTION
-------------------------------------
(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
$1.025 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 Plaintiff expressly warrants that,
in entering into the Settlement, he relied solely upon his 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 Action, the Settling ERISA Parties shall seek
certification of the Settling ERISA Plaintiff Class by the Federal Court.
13
(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.
(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 ss.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
14
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 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 the Settling
ERISA Action 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 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 Action, 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 a ERISA Settlement Agreement
that is
15
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 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.
5. 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 ss.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 xxx, 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
16
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.
6. 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
17
agreement of the Settling Parties if such extension is necessary to ensure
that the Settlement is fair, reasonable and adequate.
7. 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 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, constitutes 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.
Dated: May 12, 2003
/s/ Xxxxxx X. Xxxxxxx
-------------------------
Xxxxxx X. Xxxxxxx
Xxxxxxx Xxxxxxxxxx
Xxxxx X. Xxx
XXXXXXX XXXXX XXXXXXX
XXXXX & XXXXXX LLP
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
619/231-1058
18
Counsel for Settling Securities Plaintiffs
and Lead Plaintiffs Pirelli Xxxxxxxxx Tire,
Retiree Medical Benefits Trust, Plumbers &
Steamfitters, Local 137 Pension Fund,
O. Xxxxxx Xxxxx, 720 Capital Management, LLC
and Specialists DPM
/s/ Xxxx Xxxxxxxxx
-------------------------------
Xxxx Xxxxxxxxx
XXXXX & XXXXX, LLC
00 Xxxx Xxxxxx
Xxxx Xxxxxx, XX 00000
Telephone: 610/000-0000
610/000-0000 (fax)
Counsel for Settling Derivative Plaintiff Xxxxx Xxxxxxxx
/s/ Xxxx Xxxxxx
-------------------------
Xxxx Xxxxxx
XXXXX & XXXXXXXX
0000 Xxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: 713/000-0000
713/000-0000 (fax)
Counsel for Settling Derivative Plaintiff Xxxxx Xxxx, Xxxxx Xxxxxxxx and
Xxxxxxx Xxxxxx
/s/ Xxxxx X. Xxxxxxxxx
-----------------------------
Xxxxx X. Xxxxxxxxx
XXXXXXX & XXXXXXXXX, LLP
00000 Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxx Xxxxxxxxx, XX 00000
Telephone: 909/000-0000
909/000-0000 (fax)
Counsel for Settling Derivative Plaintiff Xxxxxxx Xxxxxx
19
/s/ Xxxxx X. Xxxxxxx
----------------------------------
Xxxxx X. Xxxxxxx
XXXXXXX XXXXX & XXXX, LLP
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Telephone: 619/000-0000
619/000-0000 (fax)
Counsel for Settling Derivative
Plaintiff Xxxxx Xxxx
/s/ Xxxxxx X. Xxxxxxxx
-----------------------------
Xxxxxx Xxxxxxxx
XXXXXXXX & XXXX LLP
Xxx Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telephone: 415/000-0000
415/000-0000 (fax)
Counsel for Settling Derivative Plaintiff
Xxxx X. Xxxxxxx, Xx.
/s/ Xxxx X. Xxxxxxx
-----------------------------
Xxxx Xxxxxxx
Xxxxx X. Xxxxxxx
Xxxxxxx Xxxxxxx
XXXXXXX XXXXXXX LLP
0000 Xxxxxxxxx, Xxxxxx X & X
Xxxxxx Xxxx, XX 00000-0000
Telephone: 501/000-0000
501/000-0000 (fax)
Counsel for Settling Derivative Plaintiff
Xxxxxxx Family LLC
/s/ Xxxxx X. Xxxxxx
--------------------------
Xxxxx X. Xxxxxx
20
XXXXXX LAW FIRM
000 X. 0xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Telephone: 512/000-0000
512/000-0000 (fax)
Counsel for Settling ERISA Plaintiff
Xxxxx Xxxxxx Xxxxxxx
/s/ Xxxxx Xxxxxxx
--------------------------
Xxxxx X. Xxxxxxx
XXXXXX, XXXXXXX & XXXX, LLP
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Counsel for Defendants Hanover Compressor Company and Xxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxx
--------------------------
Xxxxxx X. Xxxxx
Xxxxx X. Kristenbroker
KATTEN, MUCHIN ZAVIS & ROSENMAN
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
Telephone: 312/000-0000
Counsel for Defendant Xxxxxxx X. Xxxxxxxx
/s/ Xxxxxx X. Xxxxxxx, III
--------------------------
Xxxxxx X. Xxxxxxx, III
DECHERT LLP
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000-0000
Telephone: 000-000-0000
000-000-0000 (fax)
Counsel for Defendant Xxxxxxx X. Xxxxx
21
/s/ Xxxx Xxxxxxx
--------------------------
Xxxx X.X. Xxxxxxx
XXXX XXXXXX & XXXXXXX
One Houston Center
0000 XxXxxxxx Xx., Xxxxx 0000
Xxxxxxx, XX 00000-0000
713/951-3701
Counsel for Defendant Xxxxxxx X. XxXxxx
/s/ Xxxxx Xxxxxx
--------------------------
Xxxxx Xxxxxx
XXXXXX XXXXXX & VESEKLA, L.L.P.
Bank of America Center
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: 000-000-0000
000-000-0000 (fax)
Counsel for Defendants Xxxxxx X. Xxxxx, Xxx Xxxxxxx, Jr., Xxxxxx X. Xxxxxxxx,
Xxxx X. Xxxx and Xxxxx X. Xxxxxxxxx
/s/ Xxxxxx X. Xxxxx, Xx.
----------------------------------
Xxxxxx X. Xxxxx, Xx.
XXXXXX, XXXX & XXXXXX
0000 Xxxx Xxx, Xxxxx 0000
Xxxxxxx, XX 00000
713/572-8772
Counsel for Defendant Xxxxxxx X. X'Xxxxxx
/s/ Xxxxxx X. Xxxxxxxxxx
-------------------------------------
22
Xxxxxx X. Xxxxxxxxxx
SKADDEN, ARPS, SLATE, XXXXXXX
& XXXX LLP
Xxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telephone: 302/000-0000
302/000-0000 (fax)
Counsel for Defendants Xxxxxx X. Xxxxxxxx, Xxxxxx X. Xxxx
and I. Xxx Xxxxxxx
/s/ Xxxxxxx X. Xxxxx
-------------------------------------
Xxxxxxx X. Xxxxx
XXXX, WEISS, RIFKIND, XXXXXXX & XXXXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Telephone: 000-000-0000
000-000-0000 (fax)
Counsel for GKH
23
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 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 minimis 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 beneficial
ownership interest of five percent or more, or to an entity by which
the director is employed or self-employed other
2
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:
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;
4
(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
5
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.
J. the Lead Independent Director shall have the authority to retain such
counsel or consultants as the Lead Independent Director deems necessary
to perform her or 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
9
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 (including, without limitation, power to vote) of more than
50% of the outstanding shares of the Company's voting stock (based
upon voting power).
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