EXHIBIT 10.2
SECOND AMENDED AND RESTATED
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 Second Amended and Restated
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, 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 the following actions: 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, Harbor Finance Partners x. XxXxxx, et al., Case No.
H-02-0761, (collectively, the "Federal Derivative Actions"), as well as in the
Delaware Chancery Court on February 15, 2002, Xxxxxxx Family, LLC x. X'Xxxxxx,
et al., No. CA 19410 (the "State Derivative
----------
1. All capitalized terms not otherwise defined shall have the meaning set
forth in Section I below.
1
Action"), (collectively, the plaintiffs named in the State Derivative Action and
the Federal Derivative Actions are the "Derivative Plaintiffs"), (collectively,
the State Derivative Action and the Federal Derivative Actions are the
"Derivative Actions" or the "Settling Derivative Actions");
WHEREAS, on August 19, 2002 and August 26, 2002, the 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 (the "ERISA Plaintiffs") on behalf of themselves
and all other similarly situated, in the Federal Court, including Xxxxxxx v.
Hanover, et al., Xxxx Xx. X-00-0000, Xxxxxxxxxxxx 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");
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, on July 18, 2003, Settling Defendants and certain of the
Settling Plaintiffs entered into a First Amended Memorandum of Understanding
which, on the terms set forth therein, included the plaintiffs in the
Angleopoulos and Xxxxxxx actions;
WHEREAS, by Order dated August 1, 2003, the Federal Court granted an
Order consolidating the ERISA Actions into the Consolidated Securities Action
for purposes of settlement;
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, defined herein, the
Settling Derivative Defendants, defined herein, and the Settling ERISA
Defendants, defined herein, 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
2
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:
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 Derivative Plaintiffs, the Derivative
3
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, 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 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,
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 the Derivative
Plaintiffs;
4
(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;
(s) "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, 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.
5
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 45 days (45) 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 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 requirements and
procedures 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
6
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 (to include the knowledge and
investigation of counsel), 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 Section
1542 of the California Civil Code (or any law of any state or territory of the
United States, or principle of common law that is similar, comparable or
equivalent to Section 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. Hanover has deposited $29.5 (the
"Securities Settlement Cash") into an escrow fund (the "Account"), with Lead
Counsel acting as escrow agent on the terms set forth in an agreement between
Hanover and Lead Counsel related thereto. 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. GKH, Hanover, and Lead Plaintiffs'
Counsel agree that Hanover, GKH, and Lead Plaintiff shall, consistent with the
Securities
7
Settlement Agreement, 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 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 of
$6,665,000.00.
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 counsel to the Settling Securities Plaintiff Class, and all
other administrative or other
8
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. 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, the Securities
Settlement shall be null and void
9
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; (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 Court within 45 days of
execution of this Memorandum (the "Derivative Settlement
10
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 (to include the knowledge and
investigation of counsel), 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, 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 $775,000, 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,
11
as well as any other required or appropriate notice to be made by publication or
otherwise, and of which $300,000 shall be allocated and paid to THE BRUALDI LAW
FIRM.
(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 Section 1542 of the California Civil Code (or by any law of any
state or territory of the United States or principle of common law that is
similar, comparable or equivalent to Section 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 Derivative Settlement
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 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 45
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 participants, 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 have a right to
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. Distributions of funds to
members of the ERISA Plaintiff Class and/or Securities Plaintiff Class shall be
as specified in the Plan of Distribution.
(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 Section 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 Section 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
14
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 Xxxxxxx
v. Hanover, 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. This ERISA
Settlement shall be null and void and of no force and effect should any of these
conditions not be met. The consummation of the ERISA Settlement contemplated
herein 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;
15
(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
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 Section 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 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 agreed 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 45 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: 10/13/03
------------------------------
Xxxxx X. Xxxxxxx
XXXXXX XXXXXXX & XXXX LLP
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Telephone: 000-000-0000
Facsimile: 202-721-4646
Counsel for Defendant Hanover Compressor
Corporation and Xxxx Xxxxxx
/s/ Xxxxxx X. Xxxxxxx Date: 10/13/03
------------------------------
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 Xxxxxxxxx Tire,
Retiree Medical Benefits Trust, Plumbers &
Steamfitters, Local 137 Pension Fund,
O. Xxxxxx Xxxxx, 720 Capital Management,
LLC and Specialists DPM
/s/ Xxxxxxx X. Xxxxxxx Date: 9/25/03
------------------------------
Xxxxxxx X. Xxxxxxx
Xxxxx X. X'Xxxxx
THE XXXXXXX LAW FIRM
00 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 212-785-1618
Counsel for Settling Derivative Plaintiff
Harbor Finance Partners
19
/s/ Xxxx X. Xxxxxx Date: 10/2/03
------------------------------
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
/s/ Xxxxx X. Xxxxxxxxx Date: 9/26/03
------------------------------
Xxxxx X. Xxxxxxxxx
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: 10/2/03
------------------------------
Xxxx Xxxxxxxxx
XXXXX & XXXXX, LLC
X.X. Xxx 000
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telephone: 0-000-000-0000
Facsimile: 0-000-000-0000
Counsel for Settling Xxxxxxxxxx
Xxxxxxxxx Xxxxx Xxxxxxxx
00
/s/ Xxxxx X. Xxxxxxx Date: 10/2/03
------------------------------
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
/s/ Xxxxxx Xxxxxxxx Date: 10/3/03
------------------------------
Xxxxxx Xxxxxxxx
XXXXXXXX & XXXX LLP
Xxx Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 415-788-0161
Counsel for Settling Derivative Plaintiffs
Xxxx X. Xxxxxxx, Xx.
/s/ Xxxx X. Xxxxxxx Date: 9/27/03
------------------------------
Xxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
XXXXXXX XXXXXXX LLP
0000 Xxxxxxxxx, Xxxxxx X & X
Xxxxxx Xxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Counsel for Settling Derivative Plaintiff
Xxxxxxx Family LLC
21
/s/ Xxxxx Xxxxxx Date: 9/29/03
------------------------------
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
/s/ Xxxxxx Xxxxx Date: 9/1/03
------------------------------
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 Angleopoulos and Xxxxx Xxxxxxx
/s/ Xxxxxx Xxxxxxxx Date: 9/1//03
------------------------------
Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxx
Xxxx X. Xxxxx
SCHIFFRIN & BARROWAY
Three Xxxx Xxxxx Xxxx, Xxxxx 000
Xxxx Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 610-667-7056
Counsel for Settling ERISA Plaintiff
Xxx Angleopoulos
22
/s/ Xxxx Xxxxx Date: 9/3/03
------------------------------
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
/s/ Xxxxxx X. Xxxxx Date: 10/7/03
------------------------------
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 Date: 9/25/03
------------------------------
Xxxxxx X. Xxxxxxx, III
DECHERT LLP
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 202-261-3333
Counsel for Defendant Xxxxxxx X. Xxxxx
/s/ Xxxx. J.R. Xxxxxxx Date: 10/11/03
------------------------------
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: 9/24/03
------------------------------
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, Jr., Xxxxxx X. Xxxxxxxx,
Xxxx X. Xxxx and Xxxxx X. Xxxxxxxxx
/s/ Xxxxxx X. Xxxxx, Xx. Date: 10/3/03
------------------------------
Xxxxxx X. Xxxxx, Xx.
THE XXXXXX LAW FIRM
Xxxxx Xxxxxxxx, 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: 9/25/03
------------------------------
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 I. Xxx Xxxxxxx
24
/s/ Xxxxxxx X. Xxxxx Date: 9/27/03
------------------------------
Xxxxxxx X. Xxxxx
XXXX, WEISS, RIFKIND, XXXXXXX &
XXXXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 212-757-3990
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 and whose reasonable fees and expenses shall be paid
by the Company.
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, the Lead Director (if the Lead
Director is not also 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, the Lead Director (if the Lead
Director is not also 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, the Lead Director (if the Lead
Director is not also the Chairman of the Board)
and the Chief Executive Officer, shall consider
candidates to fill vacant
A-4
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;
(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
A-5
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 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 responsibilities whose reasonable
fees and expenses shall be paid by the Company.
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
A-6
(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.
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'
A-7
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
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.
A-8
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
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.
A-9
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
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
A-10
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' voting stock (based upon voting power).
IX. CODE OF CONDUCT
The Company shall create. maintain and disseminate to employees a code
of conduct appropriate in scope and content which shall include, among
other things, policies with respect to xxxxxxx xxxxxxx and proper
documentation and accounting of transactions.
A-11
