SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 19, 1999
TII INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE
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(State of Incorporation)
1-8048 66-0328885
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(Commission File No.) (IRS Employer Identification No.)
1385 Akron Street, Copiague, New York 11726
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(Address of Principal Executive Offices) (Zip Code)
(516) 789-5000
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(Registrant's telephone number, including area code
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
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On April 7, 1999, counsel for David H. Addis and Hemda Z.
Addis (the "Plaintiffs") and counsel for the Company and its eight directors
(the "Defendants") entered into a Memorandum of Understanding (the "Memorandum
of Understanding") pursuant to which an agreement in principle was reached to
settle a purported class action lawsuit (the "Action") instituted by the
Plaintiffs against the Defendants on March 19, 1999 in the Court of Chancery of
the State of Delaware in and for New Castle County.
The Action alleged, in general, (i) that the Defendants
breached their fiduciary duties of loyalty and care in authorizing the Company
to enter into a Stock Purchase Agreement dated as of December 31, 1998 (the
"Stock Purchase Agreement") between the Company and Alfred J. Roach, Chairman of
the Board of Directors and a director of the Company, to acquire from Mr. Roach
all of the outstanding shares of capital stock of PRC Leasing, Inc., which was
subject to, among other things, stockholder approval, (ii) that the Defendants
breached a duty of disclosure to stockholders of the Company, alleging that the
Proxy Statement being used in connection with a Special Meeting of Stockholders
of the Company scheduled for April 20, 1999 (the "Special Meeting") to consider
the Stock Purchase Agreement was materially misleading, omitted material
information and contained misleading partial disclosures, (iii) that the
Company's authority to issue more than 1,520,000 shares of Common Stock upon
conversion of its Series C Convertible Redeemable Preferred Stock (the
"Preferred Stock") approved by stockholders at the 1998 Annual Meeting of
Stockholders on December 8, 1998 (the "Change in the Exchange Cap") violated the
Certificate of Designation with respect to the Preferred Stock filed with the
Secretary of State of the State of Delaware and was invalid and (iv) that
options amended under the Company's 1995 Stock Option Plan and options granted
pursuant to the Company's 1998 Stock Option Plan were invalid and constituted a
gift and waste of corporate assets.
Plaintiffs seek an Order of the Court, among other things, (i)
rescinding the Stock Purchase Agreement and enjoining the Special Meeting and
the issuance of the shares of the Company's Common Stock under the Stock
Purchase Agreement, (ii) declaring that the Change in the Exchange Cap is
invalid, ineffective and void, (iii) declaring that the granting and repricing
of such stock options is invalid, ineffective and void, enjoining the exercise
of such stock options and canceling any shares issued upon exercise of such
stock options and (iv) awarding damages and reasonable costs of the Action.
The Memorandum of Understanding provides, among other things,
that subject to final Court approval of the settlement, (i) the Company and Mr.
Roach will rescind and withdraw the Stock Purchase Agreement and the issuance of
the shares of the Company's Common Stock pursuant thereto will not occur, (ii)
the Company will cancel the Special Meeting, (iii) the Plaintiffs will
acknowledge that the Change in the Exchange Cap did not violate the Certificate
of Designation related to the Preferred Stock and (iv) options with respect to
10,000 and 50,000 shares of the Company's Common Stock of Alfred J. Roach and
Timothy J. Roach under the Company's 1995
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Stock Option Plan, which were inadvertently amended on October 8, 1998, would be
amended based on the average of the high and low market price for the Common
Stock on April 7, 1999, the date the Memorandum of Understanding was entered
into, and shall be non-qualified stock options and (v) the Action will be
dismissed with prejudice, on the merits and, except for attorneys' fees as may
be awarded by the Court to Plaintiffs' counsel, without costs to either party,
and the Defendants will be given a release from, and settlement of, all claims
that are, were or could have been asserted by any Plaintiff and any record or
beneficial holder of the Company's Common Stock, (including their legal
representatives, heirs, sucessors in interest, transferees and assignees,
immediate and remote), other than the Defendants and their affiliates, during
the period from March 8, 1999 until a record date within five business days of
the mailing of notice of the proposed settlement of the Action.
The Defendants have agreed to pay any amount awarded by the
Court for attorneys' fees and expenses up to a maximum of $300,000 and not to
oppose any application for such award. The Company has been advised that most,
if not all, of such maximum amount is covered by insurance.
The consummation of the settlement is subject to, among other
things, (i) the entering into of a Stipulation of Settlement and other
documentation and (ii) final Court approval of the settlement and dismissal of
the Action with prejudice, on the merits and, except as set forth above, without
costs.
The foregoing is a brief description of the Memorandum of
Understanding and is qualified in its entirety by reference to the copy thereof
filed as Exhibit 99.1 to this Report.
On April 7, 1999, the Company issued the press release, filed
as Exhibit 99.2 of this Report, with respect to the Memorandum of Understanding
and the cancellation of the Special Meeting.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired: None.
(b) Exhibits.
99.1 Memorandum of Understanding between counsel to the
plaintiffs and counsel to the defendants in the
action entitled David H. Addis and Hemda Z. Addis v.
TII Industries, Inc., Alfred J. Roach, Timothy J.
Roach, Dorothy Roach, George S. Katsarakes, James R.
Grover, Jr., William G. Sharwell, Dr. Joseph C. Hogan
and C. Bruce Barksdale.
99.2 Press Release dated April 7, 1999.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TII INDUSTRIES, INC.
Dated: April 14, 1999 By: /s/ Paul G. Sebetic
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Paul G. Sebetic,
Vice President Finance
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EXHIBIT INDEX
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Exhibit No.
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99.1 Memorandum of Understanding between counsel to the plaintiffs
and counsel to the defendants in the action entitled David H.
Addis and Hemda Z. Addis v. TII Industries, Inc., Alfred J.
Roach, Timothy J. Roach, Dorothy Roach, George S. Katsarakes,
James R. Grover, Jr., William G. Sharwell, Dr. Joseph C. Hogan
and C. Bruce Barksdale.
99.2 Press Release dated April 7, 1999.
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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 David H. Addis and Hemda Z.
Addis 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");
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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 Alfred Roach
("Alfred"), 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 Timothy Roach, TII's president and chief executive officer
("Timothy"), and 10,000 shares held by Alfred 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) Alfred and Timothy 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 Alfred and Timothy under the 1995 Plan on October 8,
1998 and the options granted to Alfred and Timothy 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, MEAGHER & FLOM
/s/ Stephen D. Dargitz
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Edward P. Welch
Stephen D. Dargitz
One Rodney Square
Wilmington, DE 19801
(302) 651-3000
Attorneys for Defendants
PRICKETT, JONES, ELLIOTT & KRISTOL
/s/ Michael Hanrahan
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Michael Hanrahan
Ronald A. Brown
1310 King Street
Wilmington, DE 19801
(302) 888-6500
Attorneys for Plaintiffs
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TII INDUSTRIES, INC.
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FOR IMMEDIATE RELEASE: NEWS RELEASE
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TII ANNOUNCES CANCELLATION OF SPECIAL MEETING
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COPIAGUE, New York, April 7, 1999 - TII Industries, Inc. (NASDAQ NMS: TIII)
announced today that it has canceled a Special Meeting of Stockholders scheduled
to be held on April 20, 1999. The Company reported that the meeting was no
longer necessary as the Stock Purchase Agreement between it and Alfred J. Roach,
the Company's Chairman of the Board of Directors, which was subject to
stockholder approval at the proposed Special Meeting, will be terminated upon
completion of a settlement contemplated by a memorandum of understanding to
settle a purported class action lawsuit instituted by two stockholders. The
Stock Purchase agreement contemplated the Company's acquisition of PRC Leasing,
Inc., a company owned by Mr. Roach that currently leases certain manufacturing
equipment to the Company. The Company will continue to lease the equipment under
the terms of the existing lease. The Company and PRC Leasing, Inc. have agreed
not to exercise their respective options to terminate the lease on July 1999
and, therefore, the lease will continue in effect until July 2001.
"While we wanted stockholders to determine whether to proceed with a transaction
that would have assured the Company the permanent availability of the equipment,
we did not believe that incurring the substantial costs that protracted
litigation would have entailed was prudent for the Company and its
stockholders," noted Timothy J. Roach, President of the Company.
Founded in 1964, TII designs, manufactures and markets surge protection, network
interface devices and station electronics products for the communications
industries. The firm has operations in New York, Puerto Rico and the Dominican
Republic.
For Additional Information, contact:
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Paul G. Sebetic, VP Finance & CFO - TII Industries, Inc. (516) 789-5000
Jack J. Tarulli, Director - Investor Relations - TII Industries, Inc. (516)
789-5000
Bob Frost, ECOM Consultants, Inc. - (212) 391-9475
# # # #
Statements in this release that are not strictly historical are
"forward-looking" statements which should be considered as subject to the many
risks and uncertainties that exist in the Company's operations and business
environment. These risks and uncertainties include economic conditions, market
demand and pricing, competitive and cost factors as well as other factors from
time to time discussed in TII's SEC reports.
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