MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding is entered into as of July 19, 2001,
among (i) the plaintiffs in the Actions (as defined herein) and (ii) PJ America,
Inc. (the "Company"), (iii) the members of the board of directors of the Company
(Xxxxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxxxx, Xxxxxxx X. Xxxxxxxxxx, Xxx X. Xxxxx,
Xxxxx X. Xxxxxx, X. Xxxx Xxxxxxx, Xxxxxx X. Xxxx, Xxxxxxx X. Xxxxxxxx, Xxxxx
Xxxxx and Xxxxx Xxxxx) (collectively, the "Individual Defendants"), by their
respective undersigned attorneys.
WHEREAS, on March 23, 2001, an investor group that included but was
not limited to certain of the Individual Defendants (Xxxxxxx X. Xxxxxxx, Xxxxxxx
X. Xxxxxxxx, Xxxxxxx X. Xxxxxxxxxx, Xxxxx X. Xxxxxx, Xxxxxx X. Xxxx and Xxxxxxx
X. Xxxxxxxx) (collectively, the "Investor Group"), through PJ Acquisition Corp.
("PJ Acquisition"), made a preliminary offer to the Company's Board of Directors
(the "Board") to acquire all the outstanding shares of common stock of the
Company not currently owned by them in a cash tender offer at a price of $8.00
per share in cash (the "Proposal"), subject to a number of conditions, including
receipt of financing on terms satisfactory to the Investor Group and ownership
by the Investor Group of at least 90% of the Company's outstanding shares
following the purchase of shares pursuant to the tender offer.
WHEREAS, the Company announced that the Board had appointed a special
committee (the "Special Committee") of outside directors (consisting of Xxxxx
Xxxxx, Xxxxx Xxxxx and Xxx X. Xxxxx) to conduct a review of the Proposal and
evaluate strategic alternatives for the Company;
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WHEREAS, between March 23 and March 26, 2001, four substantially
similar purported class actions (collectively, the "Actions") styled Xxxxxx
Xxxxxxx v. PJ America, Inc., et al., Civil Action No. 18758-NC, Xxx Xxxxxx v.
Xxxxxxx Xxxxxxx, et al., Civil Action No. 18765-NC, Xxxxxx X. Love v. PJ
America, Inc. et al., Civil Action No. 18766-NC, and Xxxxx Xxxxxxxx, Xx. v. PJ
America, Inc., et al., Civil Action No. 18767-NC, were filed in the Court of
Chancery of the State of Delaware in and for New Castle County (the "Court"),
alleging that the Proposal was unfair to the Company's public stockholders, the
consideration was inadequate, and that some or all of the Individual Defendants
breached their fiduciary duties to the Company's public stockholders, and
seeking injunctive relief and damages in connection with the Proposal;
WHEREAS, on April 11, 2001, the Company announced that the Special
Committee engaged the investment banking firm of Banc of America Securities LLC
as its financial advisor and the law firm of Akin, Gump, Strauss, Xxxxx & Xxxx,
L.L.P. to act as its legal advisor in connection with its review of the
Proposal;
WHEREAS, on May 2, 2001, the Special Committee met with its financial
and legal advisors and concluded that it should reject the Proposal as being
inadequate, and it communicated its rejection of the Proposal to the Investor
Group on May 3, 2001;
WHEREAS, on May 14, 2001, the Investor Group made a revised proposal,
through PJ Acquisition, to purchase all the outstanding shares of common stock
not currently owned by them at an increased price of $8.50 per share in cash
(the "Revised Proposal"), subject to certain conditions;
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WHEREAS, on May 17, 2001, the Special Committee met with its financial
and legal advisors and concluded that it should reject the Revised Proposal as
being inadequate, and it communicated its rejection of the Revised Proposal to
the Investor Group on that same day;
WHEREAS, upon the request of plaintiffs' counsel, counsel for the
Special Committee provided plaintiffs' counsel with certain materials prepared
by the Special Committee's financial advisor and other non-public materials
regarding the prospects of the Company, subject to an understanding that
plaintiffs' counsel would maintain the confidentiality of such materials;
WHEREAS, plaintiffs' counsel reviewed the foregoing materials together
with their own independent financial advisors, and subsequently had multiple
discussions with the representatives of the Special Committee and the Investor
Group;
WHEREAS, after consultation with the Special Committee and plaintiffs'
counsel, on June 22, 2001, the Investor Group, through PJ Acquisition, made a
final proposal to purchase all the outstanding shares of common stock not
currently owned by them at an increased price of $8.75 per share in cash (the
"Final Proposal");
WHEREAS, on June 27, 2001, the Special Committee met with its
financial and legal advisors and, based in part on the representations of
plaintiffs' counsel that at an $8.75 per share price they would be agreeable to
settling such litigation, subject to execution of definitive agreements on
customary terms, concluded that it should recommend that the Final Proposal be
accepted by the Board, and that the Company execute a merger agreement with PJ
Acquisition (the "Merger Agreement") contemplating a tender offer pursuant to
the terms of the Final Proposal (the "Tender Offer") with a back-end merger to
acquire untendered shares at $8.75 per share in cash (the "Merger"); and
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WHEREAS, defendants acknowledge that the pendency of the Actions and
the discussions with plaintiffs' counsel were a material factor in causing the
Investor Group to increase the proposal to $8.75 per share.
NOW, THEREFORE, the parties to the Actions have reached an agreement
in principle to settle and dismiss the Actions with prejudice on the following
terms and conditions:
1. Plaintiffs and their counsel shall be entitled to review and
comment upon the draft Tender Offer materials and any other documents concerning
the Merger Agreement (collectively, the "Tender Offer Materials") before
submission of the Tender Offer Materials to the SEC for final approval in an
effort to ensure that adequate and appropriate disclosures are made so that
stockholders of the Company who are not affiliated with the Investor Group will
be able to make an informed decision about whether to tender their shares in the
Tender Offer.
2. The existence and prosecution of the Actions were material
factors considered by the Investor Group in determining to increase the per
share consideration to be paid to holders of the Company's outstanding minority
shares in the Tender Offer to $8.75 per share in cash.
3. The parties to the Actions will use their best efforts to agree
upon, execute, and present to the Court as soon as practicable upon completion
of reasonable confirmatory discovery a formal Stipulation of Settlement
(the "Stipulation") and such other documentation as may be required in order to
obtain prompt approval by the Court of the settlement and release of the
Actions, upon the terms set forth in this Memorandum of Understanding (the
"Settlement"). The parties agree that the Stipulation shall be agreed upon and
executed as soon as practicable after the date of the signing of this Memorandum
of Understanding, and no later than 30 days after the completion of confirmatory
discovery. The parties shall use their reasonable best efforts to complete such
confirmatory discovery within 60 days after the date of the signing of this
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Memorandum of Understanding (or such longer period as the parties may mutually
agree), such confirmatory discovery to consist of one deposition of one
representative of each of the Special Committee, the Investor Group and Banc of
America Securities LLC and customary review of agreements or financial
information. The Stipulation will expressly provide, among other things, (a) for
a complete release and settlement of all claims against the Company, the
Individual Defendants, PJ Acquisition and any non-party members of the Investor
Group, and their respective predecessors, successors, assignees, parents,
subsidiaries, counsel, accountants, attorneys, affiliates, and agents, including
without limitation, investment banks or bankers or commercial banks and any
past, present, or future officers, directors, or employees of defendants and
their predecessors, successors, assignees, parents, subsidiaries, counsel,
accountants, attorneys, affiliates and agents, which have been, or could have
been, asserted relating to the transactions and allegations that are the subject
of the Actions, including, inter alia, the Proposal, the Revised Proposal and
the Final Proposal, whether known or unknown at this time; (b) that defendants
have denied and continue to deny that they have committed or threatened to
commit any violations of law or breaches of duty to the plaintiffs, the Class
(as defined below) or anyone; and (c) that the defendants are entering into the
Stipulation because the proposed Settlement as described above would eliminate
the burden and expense of further litigation and would facilitate the
consummation of the transaction pursuant to the Final Proposal.
4. For purposes of the settlement of the Actions, consistent with
the terms of the Memorandum of Understanding, plaintiffs will petition the Court
in connection with the Stipulation for conditional, and ultimately if the
Settlement is approved, final certification, pursuant to Chancery Courts Rule
23(a), (b)(1) and (b)(2), of a non-opt out class defined as all holders of
common stock of the Company as of March 23, 2001, through and including the
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effective date of the Merger; excluded from the class are any defendants in the
Actions and any person, firm, trust corporation or any entity related to or
affiliated with any defendant (the "Class").
5. The parties to the Actions will present the Settlement to the
Court for hearing and approval as soon as practicable following appropriate
notice to stockholders and will use their best efforts to obtain final Court
approval of the Settlement, certification of the Class, and release and
dismissal of the Actions with prejudice as against plaintiffs and the Class and
without awarding costs to any party (except as provided in paragraph 7 below).
6. The consummation of the Settlement contemplated by this
Memorandum of Understanding is subject to (a) the Stipulation, including
certification of the Class (and other such documentation as may be required to
obtain final Court approval of the Settlement), being executed by counsel for
the parties, (b) to the extent that the Company's D&O insurance policy is
implicated by the Settlement, written consent to the terms of the Settlement by
the Company's D&O insurance carrier (which consent, pursuant to the Company's
D&O insurance policy, may not be unnecessarily withheld), (c) the consummation
of the transaction pursuant to the Final Proposal; (d) final Court approval of
the Settlement including certification of the Class (and the exhaustion of
possible appeals, if any) and the dismissal of the Actions by the Court with
prejudice and without awarding costs to any party (except as provided for in
Paragraph 7 below) have been obtained; and further provided that no order has
been entered by any Court of competent jurisdiction restraining or enjoining the
Final Proposal. This Memorandum of Understanding shall be null and void and of
no force and effect should any of the above conditions and provisos not be met;
in such event this Memorandum of Understanding shall not be deemed to prejudice
in any way the positions of the parties with respect to the Actions nor
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entitle any party to recovery of fees, costs or expenses incurred to implement
this Memorandum of Understanding.
7. As part of the approval and consummation of the Settlement, and
subject to the approval of the Court and the terms and conditions of this
Memorandum of Understanding and the contemplated Stipulation, the Company and
the Individual Defendants have agreed not to oppose an application by
plaintiffs' counsel for attorneys' fees and expenses not to exceed $185,000 in
the aggregate. If the transaction pursuant to the Final Proposal does not close
or the Court fails to approve the Settlement, no payment shall be due under the
terms of this Memorandum of Understanding.
8. The Company shall pay costs and expenses incurred in providing
notice of the Settlement to the Class regardless of whether the Settlement is
consummated. Defendants or their designated agent shall administer such notice.
9. The parties to the Actions agree that the Actions shall be stayed
pending submission of the proposed Settlement to the Court for its consideration
and no other proceedings shall be undertaken in connection with the Actions
except for the completion and filing of a currently proposed consolidation
order, consolidated amended complaint, and confidentiality stipulation. Counsel
shall enter into such documentation as shall be required to effectuate the
foregoing agreements.
10. If any action is filed in state or federal court asserting
claims that are related to the subject matter of the Actions prior to final
court approval of the proposed Settlement, plaintiffs in the Actions shall
cooperate with defendants in obtaining the dismissal or withdrawal of such
related litigation, including where appropriate joining in any motion to dismiss
such litigation.
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11. This Memorandum of Understanding may be executed in counterpart
by any of the signatories hereto, and as so executed shall constitute one
agreement.
12. This Memorandum of Understanding and the Settlement contemplated
by it shall be governed by, and construed in accordance with the laws of the
State of Delaware.
13. This Memorandum of Understanding may be modified or amended only
by a writing signed by the signatories hereto.
14. Plaintiffs and their counsel represent and warrant that none of
plaintiffs' claims or causes of action referred to in this Memorandum of
Understanding have been assigned, encumbered or in any manner transferred in
whole or in part.
15. Each of the attorneys executing this Memorandum of Understanding
has been duly empowered and authorized by his/her respective client(s) to do so.
16. All parties agree that, whether or not the Settlement is
consummated, this Memorandum of Understanding and the agreements that are
contained herein will not be introduced into evidence or used in any way in
connection with any subsequent proceeding in the Actions or otherwise.
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Date: July 19, 2001
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxx, Esq.
Wechsler Xxxxxxx Xxxxxxxx & Feffer LLP
000 Xxxxxxx Xxxxxx, 0/xx/ Xxxxx
Xxx Xxxx, XX 00000
And
/s/ Xxxxxxxx Xxxxxx
-----------------------------------------
Xxxxxxxx Xxxxxx, Esq.
Xxxxxxxx Labaton Rudoff & Sucharow LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Co-Lead Counsel on behalf of Plaintiffs
/s/ Xxxx X. Xxxxxx
-----------------------------------------
Xxxx X. Xxxxxx, Esq.
Xxxxxxxx X. Xxxxxx, Esq.
The Bayard Firm
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Counsel on behalf of the Individual
Defendants who are Members of
The Investor Group
/s/ Christian Xxxxxxx Xxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxxx, Esq.
Christian Xxxxxxx Xxxxxx, Esq.
Xxxx X. Xxxxxxxxx, Esq.
Young, Conaway, Stargatt & Xxxxxx, LLP
Eleventh Floor, Wilmington Trust Center
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Counsel on behalf of the Company and
Individual Defendants who are not
Members of the Investor Group
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