MEMORANDUM OF UNDERSTANDING
This MEMORANDUM OF UNDERSTANDING is entered into as of April
7, 1999 among the plaintiffs ("Plaintiffs") in the litigation identified below,
TII Industries, Inc. ("TII"), a Delaware corporation, and the members of TII's
Board of Directors (the "TII Board") by their undersigned attorneys;
WHEREAS, an action (the "Action") has been filed in the court
of Chancery of the State of Delaware individually, derivatively and on behalf of
a class of all holders of stock of TII on March 8, 1999 (other than the
Defendants and their affiliates), styled Xxxxx X. Xxxxx and Xxxxx X.
Xxxxx v. TII Industries, Inc. et al., C.A. No. 17032NC;
WHEREAS, the Action names as defendants TII and the members of
the TII Board (collectively, "Defendants");
WHEREAS, the Complaint in the Action seeks declaratory,
injunctive and other relief, with respect to:
(a) A December 31, 1998 Stock Purchase Agreement (the
"Stock Purchase Agreement") and issuance of approximately 1,176,213 shares of
TII Common Stock pursuant thereto (the "Stock Issuance");
(b) The approval by TII's stockholders of TII issuing
more than 1,520,000 shares of TII common stock upon conversion of TII's Series C
Convertible Redeemable Preferred Stock (the "Series C Stock"); and
(c) The repricing of certain options pursuant to TII's
1995 Stock Option Plan (the "1995 Plan") and 1998 Stock Option Plan (the "1998
Plan");
WHEREAS, plaintiffs have filed a motion for expedited
proceedings and a motion for a preliminary injunction with respect to the claims
relating to the Stock Purchase Agreement and Stock Issuance;
WHEREAS, plaintiffs' counsel had conducted an extensive
factual and legal investigation before filing the detailed 31 page Complaint in
the Action;
WHEREAS, TII and the TII Board deny any wrongdoing or any
liability and deny that they have committed or have attempted to commit any
violation of law or breach of duty, including breach of any duty to holders of
TII common stock, or have otherwise acted in any improper manner;
WHEREAS, the parties concluded that prompt settlement
discussions would be in the best interests of TII and its stockholders;
WHEREAS, following negotiations between the parties, counsel
for the parties have reached an agreement in principle providing for the
proposed settlement of the Action on the terms and conditions set forth below
(the "Settlement"); and
WHEREAS, Plaintiffs' counsel believe that the Settlement is in
the best interests of TII and the stockholders of TII;
NOW, THEREFORE, IT IS HEREBY AGREED IN PRINCIPLE AS FOLLOWS:
1. Principal terms of Settlement. Subject to the additional
conditions, terms and limitations described herein, the parties agree in
principle as follows:
(a) Withdrawal of Stock Purchase Agreement and Stock Issuance.
(i) TII and its chairman of the board Xxxxxx Xxxxx
("Xxxxxx"), acting on behalf of himself and as sole stockholder and
director of PRC Leasing, Inc. ("PRC"), will rescind and withdraw the
Stock Purchase Agreement upon Final Court
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Approval of the Settlement as defined in Section 3 of this Memorandum
of Understanding.
(ii) Subject to Final Court Approval of the
Settlement as defined in Section 3 of this Memorandum of Understanding,
the Stock Issuance will not occur.
(iii) TII will cancel the special meeting of TII
stockholders presently scheduled for April 20, 1999.
(iv) An officer of TII will provide an affidavit
verifying that the equipment which is the subject of the July 18, 1991
Equipment Lease between PRC and TII (the "Equipment Lease") is still in
existence (or has been replaced by other equipment provided by PRC), is
fully operational and is being used in TII's business.
(b) Exchange Cap
Plaintiffs acknowledge that (i) the Exchange Cap (as defined
in Section 12 of the Certificate of Designations of the Series C Stock) only
applies if the issuance of in excess of 1,520,000 shares of TII Common Stock
upon conversion of the Series C Stock would constitute a breach of TII's
obligations under the rules and regulations of The Nasdaq Stock Market and that
(ii) because TII stockholders, at the December 8, 1998 TII annual meeting of
stockholders, approved the issuance of shares of TII common stock upon
conversion of the Series C Stock in excess of 1,520,000 shares, the issuance by
TII of shares in excess of 1,520,000 will not breach TII's obligations under the
Nasdaq Rules and therefore will not violate Section 12 of the Certificate of
Designations of the Series C Stock.
(c) Options
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(i)Defendants acknowledge that 50,000 options held
by Xxxxxxx Xxxxx, TII's president and chief executive officer
("Xxxxxxx"), and 10,000 shares held by Xxxxxx pursuant to the 1995 Plan
(the "Additional 1995 Options") were not to be repriced by the TII
Board of Directors on October 8, 1998.
(ii) The Additional 1995 Options will be repriced
by the TII board based on the average of the high and low market price
for TII common stock on the date that counsel for the parties execute
this Memorandum of Understanding.
(iii) Xxxxxx and Xxxxxxx will file amendments to
their respective Schedule 13-Ds reflecting the correct repricing of the
Additional 1995 Options in compliance with the foregoing paragraph,
after the signing of this Memorandum of Understanding.
(iv) The Additional 1995 Options, the repriced
options granted to Xxxxxx and Xxxxxxx under the 1995 Plan on October 8,
1998 and the options granted to Xxxxxx and Xxxxxxx pursuant to the 1998
Plan on December 8, 1998 shall be non-qualified stock options and not
incentive stock options.
2. Stipulation of Settlement. The parties to the Action will
in good faith agree upon and execute an appropriate Stipulation of Settlement
(the "Stipulation") and such other documentation as may be required in order to
obtain Final Court approval (as defined below) of the Settlement and the
dismissal of the Action upon the terms set forth in this Memorandum of
Understanding (collectively, the "Settlement Documents"). The Stipulation will
expressly provide, inter alia, for certification, for settlement purposes only,
of a non-opt out settlement class pursuant to Delaware Court of Chancery Rules
23(b)(1) and (b)(2) of all holders of TII stock (other than the defendants and
their affiliates), whether beneficial or of record, during the period from March
8, 1999
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until a record date within 5 business days of the mailing of notice of the
proposed Settlement to stockholders. including the legal representatives, heirs,
successors in interest, transferees and assignees of all such foregoing holders
and/or persons, immediate and remote (the "Class"); for entry of judgment
dismissing the Actions with prejudice, on the merits, and, except as provided
herein, without costs to either party; for a complete release and settlement of
all claims, rights, causes of action, suits, demands, matters, and issues, known
or unknown, arising under common law or statutory law, state or federal,
including all securities laws (except claims arising from any breach of the
terms of the Stipulation), that arise now or hereafter out of, or relate to,
directly or indirectly, or that are, were, or could have been asserted by any
plaintiff or any member of the Class in connection with the subject matter of
the Action, whether asserted directly, indirectly, representatively,
derivatively, or otherwise, against defendants or any of their affiliates,
associates, successors, assigns, heirs, executors, personal representatives,
estates or administrators, or attorneys and, as to TII, its officers, directors,
stockholders, controlling persons, employees, or agents (including, without
limitations, any investment bankers or attorneys); that Defendants have denied
and continue to deny any wrongdoing, any liability or that they have committed
or attempted to commit any violations of law or breaches of duty of any kind;
and that Defendants are entering into the Stipulation solely because the
proposed Settlement as described above would eliminate the burden, risk and
expense of further litigation, and is in the best interests of TII and all the
stockholders of TII.
3. Notice and Court Approval. The parties to the Action will
present the Settlement Documents to the Court of Chancery of the State of
Delaware for approval as soon as practicable. Subject to prior Court approval of
the Stipulation and the form of the Settlement Documents, appropriate notice of
the proposed Settlement pursuant to the Chancery Court Rules 23
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and 23.1 shall be provided as soon as practicable to the Class and all holders
of TII stock as of a record date within 5 business days of the time notice is
sent. TII shall pay the costs and expenses related to providing notice of the
Settlement. As used in this Memorandum of Understanding, "Final Court Approval"
of the Settlement means that the Court of Chancery of the State of Delaware has
entered an order approving the Settlement and that such order is finally
affirmed on appeal or is no longer subject to appeal and the time for any
petition for reargument, appeal or review has expired. Plaintiffs' counsel
intend to apply to the court for an award of attorneys' fees and reasonable
out-of-pocket disbursements. Subject to the terms and conditions of this
Memorandum of Understanding and the contemplated Stipulation of Settlement,
Plaintiffs' counsel will apply for an award of fees and expenses in an amount
not exceeding $300,000, to be paid within 5 business days of Final Court
Approval of the Settlement and the entry of an order awarding fees and expenses
by the Court. Defendants agree that they will pay any amount awarded by the
Court for attorney's fees and expenses up to a maximum amount of $300,000 and
that they will not oppose an application in compliance with the foregoing
sentence.
4. California Civil Code
With respect to any and all claims being settled, it is the
intention of the parties that, upon the Settlement becoming final, plaintiffs
and each member of the Class shall expressly waive and relinquish, to the
fullest extent permitted by law, the provisions, rights, and benefits of Section
1542 of the California Civil Code, which statute provides that:
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.
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and any and all provisions, rights and benefits of any similar statute or law of
California or any other jurisdiction.
5. Other Conditions. The consummation of the Settlement is
subject to: (a) the drafting and execution of the Settlement Documents necessary
to effectuate the terms of the proposed Settlement; and (b) Final Court Approval
(as defined above) of the Settlement and dismissal of the Action with prejudice,
on the merits, and, except as provided herein, without costs to either party.
This Memorandum of Understanding shall be null and void and of no force and
effect if either of these conditions is not 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, shall be subject to Rule 408 of the
Delaware Rules of Evidence and shall not entitle any party to recover any costs
or expenses incurred in connection with the implementation of this Memorandum of
Understanding.
6. Interim Stay of the Action. The parties to the Action agree
that, except as expressly provided herein, the Action shall be stayed pending
submission of the proposed Settlement to the Court for its consideration.
Plaintiffs' counsel agree that Defendants' time to answer or otherwise respond
to the Complaint in the Action is extended without date.
7. Miscellaneous. (a) This Memorandum of Understanding may be
executed in counterparts by any of the signatories hereto and as so executed
shall constitute one agreement; (b) 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 without regard to that State's rules
concerning conflict of laws; (c) except as provided herein, Defendants shall
bear no expenses, costs, damages or fees incurred by the named Plaintiffs, any
member of the Class, any TII stockholder or their respective attorneys, experts,
advisors, agents or representatives; and (d) the provisions
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contained in this Memorandum of Understanding shall not be deemed a
presumption, concession or admission by any Defendant of any breach of duty,
liability, default or wrongdoing as to any facts or claims alleged or asserted
in the Action.
SKADDEN, ARPS, SLATE, XXXXXXX & XXXX
/s/ Xxxxxxx X. Xxxxxxx
-------------------------------------
Xxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxxx
Xxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
(000) 000-0000
Attorneys for Defendants
PRICKETT, JONES, XXXXXXX & KRISTOL
/s/ Xxxxxxx Xxxxxxxx
-------------------------------------
Xxxxxxx Xxxxxxxx
Xxxxxx X. Xxxxx
0000 Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
(000) 000-0000
Attorneys for Plaintiffs
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