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): May 25, 1999
TII INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(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 May 25, 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 Stipulation of Settlement (the "Stipulation of
Settlement") 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
"Court"). The Stipulation of Settlement embodies the terms of a Memorandum of
Understanding setting forth an agreement in principle to settle the Action which
was entered into on April 7, 1999 and reported in the Company's Current Report
on Form 8-K dated (date of earliest event reported) March 19, 1999.
Pursuant to the Memorandum of Understanding (a) the Company
canceled a Special Meeting of Stockholders scheduled to be held on April 20,
1999 to consider the 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. and (b)
options with respect to 10,000 and 50,000 shares of the Company's Common Stock
held by Alfred J. Roach and Timothy J. Roach under the Company's 1995 Stock
Option Plan, which were inadvertently amended on October 8, 1998, were 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
confirmed as non-qualified stock options
The consummation of the settlement is subject to, among other
things, final Court approval of the settlement and dismissal of the Action with
prejudice, on the merits.
Pursuant to a Scheduling Order of the Court, the Company is
sending a Notice of Pendency of Class Action, Temporary and Proposed Class
Action Determination, Proposed Settlement of Class and Derivative Action,
Settlement Hearing and Right to Appear on June 11, 1999 to all stockholders of
record on or after March 8, 1999 through June 4, 1999 (and will forward same to
brokers, banks and other nominees for distribution to beneficial owners of its
Common Stock during that period), advising, among other things, that a hearing
concerning the settlement will be held before the Court on July 12, 1999.
The foregoing is a brief description of the Stipulation of
Settlement and is qualified in its entirety by reference to the copy thereof
filed as Exhibit 99.1 to this Report.
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Item 7. Financial Statements and Exhibits
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(a) Financial statements of business acquired: None.
(b) Exhibits.
99.1 Stipulation of Settlement 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.
SIGNATURES
----------
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: June 14, 1999 By: /s/ Paul G. Sebetic
-----------------------------------
Paul G. Sebetic,
Vice President Finance
-3-
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EXHIBIT INDEX
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Exhibit No. Description
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99.1 Stipulation of Settlement 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.
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
DAVID H. ADDIS and HEMDA Z. :
ADDIS, :
:
Plaintiffs, :
:
v. : Civil Action No. 17032NC
:
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, C. BRUCE BARKSDALE, :
:
Defendants. :
STIPULATION AND AGREEMENT OF SETTLEMENT
---------------------------------------
DAVID H. ADDIS and HEMDA Z. ADDIS ("Plaintiffs") and TII
INDUSTRIES, INC. ("TII"), 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 (collectively the "Defendants"), by and through their
undersigned counsel, have entered into and propose the following
Stipulation and Agreement of Settlement (the "Stipulation") for approval of
the Court:
<PAGE>
RECITALS:
A. TII is a Delaware corporation headquartered in Copiague, New York and
designs, manufactures and markets surge protectors, network interface
devices ("NIDs") and station electronics for use in the communications
industry.
B. Alfred J. Roach ("Alfred") is the Chairman of the Board of TII. Alfred
is also the sole stockholder of PRC Leasing, Inc. ("PRC"), which has
leased certain equipment to TII since 1982. The equipment is currently
the subject of a July 18, 1991 Equipment Lease between TII and PRC (the
"Equipment Lease").
C. From October 8, 1998 through the present, defendants Alfred, Timothy J.
Roach ("Timothy"), Dorothy Roach, George S. Katsarakes, James R.
Grover, Jr., William R. Sharwell, Dr. Joseph C. Hogan and C. Bruce
Barksdale were the directors of TII.
D. On October 8, 1998, the TII Board approved the repricing of certain
stock options under TII's 1995 Stock Option Plan (the "1995 Plan").
E. On October 8, 1998, the TII Board approved a 1998 Stock Option Plan
(the "1998 Plan") to replace certain options under TII's 1983 Stock
Option Plan (the "1983 Plan") and TII's 1986 Stock Option Plan (the
"1986 Plan"). At an annual meeting held on December 8, 1998
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(the "1998 Annual Meeting"), TII's common stockholders voted to approve
the 1998 Plan.
F. At the 1998 Annual Meeting, the TII common stockholders also approved a
resolution that permits TII to issue more than 1,520,000 shares of TII
common stock (the "Exchange Cap") upon conversion of TII Series C
Convertible Redeemable Preferred Stock ("Series C Stock").
G. On December 31, 1998, TII and Alfred executed a Stock Purchase
Agreement, pursuant to which TII would acquire the stock of PRC from
Alfred in exchange for 1,176,213 shares of TII common stock valued at
$1.87 per share (the "Stock Issuance"). Pursuant to a notice of meeting
and proxy statement dated March 16, 1999, the Stock Purchase Agreement
was to be presented for stockholder approval at an April 20, 1999,
special meeting of TII's stockholders (the "1999 Special Meeting").
H. On March 19, 1999, Plaintiffs filed the complaint (the "Complaint") in
this individual, derivative and class action in the Court of Chancery
for the State of Delaware, styled David H. Addis and Hemda Z. Addis v.
TII Industries, Inc. et al., C.A. No. 17032 (the "Action"). The
Complaint seeks declaratory, injunctive and other relief based on
allegations that: (1) the Stock Purchase Agreement
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and Stock Issuance constitute a breach of the fiduciary duties of
loyalty, care and disclosure, are the result of unfair dealing and are
grossly unfair to TII and its public stockholders; (2) the purported
authorization permitting TII to issue more than the 1,520,000 shares of
TII common stock TII was permitted to issue under the Exchange Cap upon
conversion of Series C Stock is a violation of 8 Del. C. ss. 242 and
TII's Certificate of Incorporation; and (3) the granting and repricing
of certain stock options pursuant to the 1995 Plan and the 1998 Plan
are invalid.
I. On March 19, 1999, Plaintiffs filed motions seeking expedited
proceedings and preliminary injunctive relief against the Stock
Issuance and the Stock Purchase Agreement.
J. Subsequent to the filing of the complaint, the parties engaged in
arm's-length settlement negotiations concerning the terms of a possible
settlement. On April 7, 1999, the parties entered into a Memorandum of
Understanding (the "MOU") contemplating the settlement, pursuant to the
terms described in this Stipulation, of all claims asserted, or that
could have been asserted in the Action or that arise from or relate to
the events described in the Action.
K. On April 7, 1999, pursuant to the terms of the MOU, TII canceled the
April 20, 1999, special meeting of TII stockholders.
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L. Pursuant to the terms of the MOU, the TII board has repriced the
Additional 1995 Options (as defined herein) based on the average of the
high and low market price for TII common stock on the date of the
signing of the MOU.
M. Plaintiffs, through their counsel, have made a comprehensive and
thorough investigation of the claims and allegations asserted in the
Complaint, as well as the facts and circumstances relevant to the
Action. In connection with their investigation, Plaintiffs' counsel
has, among other things, carefully reviewed (i) the Certificate of
Incorporation and By-Laws of TII, (ii) numerous documents filed by TII,
Alfred and Timothy with the Securities and Exchange Commission in
connection with the Stock Issuance, Stock Purchase Agreement, the
Equipment Lease, the 1983 Plan, the 1986 Plan, the 1995 Plan, the 1998
Plan, and the Series C Stock, and (iii) the proxy statements
disseminated in connection with the 1998 Annual Meeting and the
now-canceled 1999 Special Meeting. Plaintiffs' counsel has conducted
legal research concerning the viability and merit of Plaintiffs'
claims.
N. While Plaintiffs believe that the claims asserted in the Action have
merit, they also believe that the settlement provided for herein (the
"Settlement") provides substantial benefits to the Class, in that it
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provides Class members with most of the relief sought by Plaintiffs in
the Action. First, the Settlement will result in the Stock Purchase
Agreement being rescinded and the Stock Issuance being abandoned,
thereby achieving complete success on Counts I and II of the Complaint.
Second, the Settlement clarifies that the approval by TII's
stockholders of the issuance of more than 1,520,000 shares of TII
common stock upon conversion of Series C Stock means that, if TII
issues shares in excess of such amount, that issuance will not violate
Nasdaq rules and, accordingly, will not violate 8 Del. C. ss. 242 or
TII's Certificate of Incorporation. Third, the Settlement will result
in the correction of the potential invalidity of certain options issued
to Alfred and Timothy Roach, while permitting the issuance of options
pursuant to option plans, including the 1995 Plan and 1998 Plan, which
have been approved by TII's stockholders. In addition to the benefits
the Settlement will provide to TII, its stockholders and the Class,
Plaintiffs and their counsel have considered (1) the attendant risks of
litigation and the uncertainty of the outcome of the Action, (2) the
desirability of permitting the Settlement to be consummated as provided
by the terms of this Stipulation, and (3) the conclusions reached by
Plaintiffs and their counsel that (i) under the circumstances, the
terms and conditions of the Settlement are
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fair, reasonable and adequate, and (ii) the Settlement is in the best
interests of TII, its stockholders, Plaintiffs and the members of the
Class to settle the Action on the terms provided for in this
Stipulation.
O. The Defendants have denied and continue to deny that any of them has
committed or has threatened to commit any violation of law or breaches
of fiduciary duty to the Plaintiffs or the members of the Class, but
because of the burden, risk and expense of continued litigation,
Defendants consider it to be in the best interests of TII and all of
the stockholders of TII that the Action be settled and dismissed.
P. The parties hereto desire to settle and dismiss with prejudice and on
the merits the Action and, except as provided herein, without costs to
any party, any and all claims that are, were or could have been
asserted by Plaintiffs or any member of the Class in connection with
the subject matter of the Action, whether asserted directly,
indirectly, representatively, derivatively or otherwise.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree, subject to the approval of
the Court, pursuant to Court of Chancery Rule 23 and 23.1, that all claims,
rights, causes of action, suits, demands, matters, and issues, known
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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 (collectively the "Settled Claims"), 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 agents (including,
without limitation, any investment bankers or attorneys) and, as to TII, its
officers, directors, stockholders, controlling persons, employees, or agents
(including, without limitation, any investment bankers or attorneys)
(collectively, the "Released Persons") shall be compromised, settled, released
and dismissed with prejudice, upon and subject to the following terms and
conditions (the "Settlement"):
1. Terms Relating to Challenged Transactions
(a) Withdrawal of Stock Purchase Agreement and Stock Issuance
(i) Subject to Final Court Approval, as defined in Section 2
below, TII and Alfred, acting on behalf of himself and as
sole stockholder and director of
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PRC, will rescind and withdraw the Stock Purchase
Agreement.
(ii) Subject to Final Court Approval, TII will not call
another meeting of stockholders to consider the Stock
Purchase Agreement in lieu of the Special Meeting of the
TII Stockholders scheduled for April 20, 1999, which TII
has canceled.
(iii) TII has canceled the special meeting of the TII
stockholders scheduled for April 20, 1999.
(iv) An officer of TII will provide an affidavit verifying
that the equipment which is the subject of 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
9
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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
(i) Defendants represent that 50,000 options held by Timothy,
TII's president and chief executive officer, and 10,000
shares held by Alfred pursuant to the 1995 Plan (the
"Additional 1995 Options") were not to have been repriced
by the TII Board of Directors on October 8, 1998 and that
pursuant to the Settlement, the Additional 1995 Options
were repriced by the TII board based on the average of
the high and low market price for TII common stock on the
date of the signing of the MOU.
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(ii) Alfred Roach and Timothy Roach will file amendments to
their respective Schedule 13-Ds reflecting the correct
repricing of the Additional 1995 Options in compliance
with the foregoing paragraph.
(iii) 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. Final Court Approval
The parties will attempt in good faith to obtain Final Court
Approval of the Settlement and the dismissal of the Action upon the terms set
forth in this Stipulation. As used herein, "Final Court Approval" 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.
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3. Class Definition
For purposes of settlement only, the Action shall be
maintained as a class action pursuant to Court of Chancery Rules 23(a) and
23(b)(1) and 23(b)(2) on behalf of a non-opt out settlement class 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, until a record
date within 5 business days of the mailing of notice of the proposed Settlement
to the 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").
4. Scheduling Order
As soon as practicable after the execution of this
Stipulation, the parties hereto shall jointly apply to the Court for an order in
the form attached hereto as Exhibit A (the "Scheduling Order"), directing that a
settlement hearing (the "Settlement Hearing") be held and establishing the
procedure for (a) approval of notice to the Class and (b) the Court's
consideration of the Settlement, certification of the Class and Plaintiffs'
counsel's application for attorneys' fees and expenses. The parties shall
include as part of the Scheduling Order a form of notice to members of the Class
substantially in the form attached hereto as Exhibit B (the "Notice").
5. Mailing of the Settlement Notice
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Subject to prior Court approval of the Scheduling Order and
the form of the Settlement Documents, the Notice of the proposed
Settlement shall be provided pursuant to Chancery Court Rules 23 and 23.1
as soon as practicable to the Class and all holders of TII stock as of a record
date within 5 business days of the mailing of notice of the proposed
Settlement. The Notice shall direct brokers, banks and/or other persons or
entities who hold of record for the account of another promptly to forward
the Notice to the respective beneficial owners.
6. Settlement Hearing
The Settlement Hearing shall be held at such time as shall be
designated by the Court. In connection with the Settlement Hearing, the parties
hereto shall file such papers as their counsel believe to be necessary. At the
Settlement Hearing, the Court shall consider the fairness of the terms and
conditions of the Settlement and all of the actions contemplated by this
Stipulation, including Plaintiffs' counsel's request for attorneys' fees and
expenses, and whether the Settled Claims should be dismissed with prejudice, on
the merits and, except as provided herein, without costs to any party.
7. Costs of Notice and Affidavit of Mailing
TII shall assume the administrative responsibility for
providing the Notice pursuant to Chancery Court Rules 23 and 23.1 in
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accordance with the Scheduling Order and shall pay all costs and expenses
incurred in providing such Notice. Plaintiffs shall have no responsibility for
any such costs regardless of whether the Settlement is consummated. No later
than ten (10) business days prior to the Settlement Hearing, counsel for TII
shall file with the Court an appropriate affidavit with respect to preparing and
mailing the Notice.
8. Order and Final Judgment
If the Settlement (including any modification thereto made
with the consent of the parties as provided for herein) is approved by the
Court, the parties shall jointly request the Court to enter an Order and Final
Judgment substantially in the form attached hereto as Exhibit C (the "Final
Order"), providing as follows:
(a) Approving the Stipulation, the Settlement and the actions
contemplated thereby as fair, just, reasonable, adequate
and in the best interests of TII, the Class and the members
thereof, and directing the performance of the acts set
forth in, and reserving jurisdiction to supervise the
administration and consummation of, this Stipulation and
the Settlement;
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(b) Determining that the requirements of Rules 23 and 23.1 of
the Chancery Court Rules and due process have been
satisfied;
(c) Certifying the Action as a class action of all holders of
TII stock on any day during the period from March 8, 1999
until a record date within 5 business days of the mailing
of the Notice of the Settlement, including the legal
representatives, heirs, successors in interest, transferees
and assignees of all such foregoing holders and/or persons,
immediate and remote (the "Class");
(d) Certifying the named plaintiffs as Class and derivative
representatives, and their counsel as Class and derivative
counsel;
(e) Dismissing the Action with prejudice, on the merits and,
except as provided herein, without costs to any party, and
compromising, settling, releasing and dismissing all
Settled Claims as against all Released Persons.
9. Conditions of the Settlement
The consummation of the Settlement is subject to Final Court
Approval of the Settlement and dismissal of the Action with prejudice and on the
merits and without awarding costs to any party, except as provided
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herein. This Stipulation shall be null and void and of no force and effect if
this condition is not met. In such event, this Stipulation shall not be deemed
to prejudice in any way the positions of the parties with respect to the Action,
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 Stipulation.
10. Section 1542 of the 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 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 states:
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,
and any and all provisions, rights and benefits of any similar statute or law
of California or any other jurisdiction.
11. Application for Attorneys' Fees and Expenses
Plaintiffs' counsel intends 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 Stipulation, Plaintiffs' counsel will apply for
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an award of fees and expenses in an amount not exceeding $300,000.00, to be paid
following Final Court Approval of the Settlement and the entry of an order
awarding fees and expenses by the Court. Defendants agree to pay any fees and
expenses awarded by the Court for attorneys' fees and expenses up to a maximum
amount of $300,000.00 and that they will not oppose an application in compliance
with the foregoing sentence. Subject to the terms and conditions of this
Stipulation and any order of the Court, any such attorneys' fees and expenses
awarded by the Court to Plaintiffs' counsel pursuant to this paragraph shall be
paid by TII to Prickett, Jones, Elliott & Kristol within five (5) business days
after the later of (a) Final Court Approval of the Settlement, or (b) the date
when the Order of the Court granting the application of Plaintiffs' counsel for
an award of fees and expenses has been entered by the Court and is no longer
subject to appeal, either because the time for an appeal has expired with no
appeal having been taken, or an appeal has been taken but has been dismissed
with no further right of appeal, or such Order has been finally affirmed with no
further right of appeal.
12. Miscellaneous
(a) 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
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its consideration. Plaintiffs' counsel agrees that
Defendants' time to answer or otherwise respond to the
Complaint in the Action is extended without date.
(b) This Stipulation constitutes the entire agreement among
the parties with respect to its subject matter and
supersedes any prior oral or written agreements or
understandings with respect thereto. This Stipulation may
only be amended or any of its provisions waived by a
writing executed by all parties to the Stipulation or
their counsel.
(c) Without further order of the Court, the parties may agree
to reasonable extensions of time to carry out any of the
provisions of the Stipulation.
(d) Any failure by any party to insist upon the strict
performance by any other party of any of the provisions
of this Stipulation shall not be deemed a waiver of any
of those provisions, and such party, notwithstanding such
failure, shall have the right thereafter to insist upon
the strict performance of any and all of the provisions
of this Stipulation to be performed by such other party.
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(e) All of the exhibits hereto are incorporated herein by
reference as if set forth herein verbatim, and the terms
of all exhibits are expressly made part of this
Stipulation.
(f) This Stipulation may be executed in counterparts by any
of the signatories hereto and as so executed shall
constitute one agreement.
(g) This Stipulation 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.
(h) 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
(in their capacity as such) or their respective
attorneys, experts, advisors, agents or representatives.
(i) The provisions contained in this Stipulation 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.
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(j) Each of the attorneys executing the Stipulation on behalf
of one or more of the parties hereto warrants and
represents that he or she has been duly authorized and
empowered to execute this Stipulation on behalf of his or
her respective client or clients. Plaintiffs and
Plaintiffs' counsel represent and warrant that Plaintiffs
are members of the Class and that they have not assigned,
encumbered or in any manner transferred in whole or in
part, any of the claims or causes of action asserted in
the Action.
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SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
/s/ STEPHEN D. DARGITZ
-----------------------------------
Edward P. Welch
Stephen D. Dargitz
One Rodney Square
Wilmington, Delaware 19801
(302) 651-3000
Attorneys for Defendants
PRICKETT, JONES, ELLIOTT &
KRISTOL
/s/ MICHAEL HANRAHAN
-----------------------------------
Michael Hanrahan
Ronald A. Brown
1310 King Street
Wilmington, Delaware 19801
(302) 888-6500
Attorneys for Plaintiffs
OF COUNSEL:
Arthur T. Susman
Susman & Watkins
Two First National Plaza, Suite 600
Chicago, Illinois 60603
(313) 346-3466
Dated: May 25, 1999
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Exhibit A
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
DAVID H. ADDIS and HEMDA Z. :
ADDIS, :
:
Plaintiffs, :
:
v. : Civil Action No. 17032NC
:
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, C. BRUCE BARKSDALE, :
:
Defendants. :
SCHEDULING ORDER FOR APPROVAL
-----------------------------
OF SETTLEMENT OF CLASS ACTION
-----------------------------
The parties to the above-captioned action (the "Action"), having
applied for an Order seeking a class action determination herein and determining
certain matters in connection with the proposed settlement of the Action (the
"Settlement"), in accordance with the Stipulation and Agreement of Settlement
entered into by the parties dated May 25, 1999 (the "Stipulation"), and for
dismissal of the Action upon the terms and conditions set forth in the Stipula
tion;
NOW, upon consent of the parties, after review and consideration of the
Stipulation filed with the Court and the exhibits annexed thereto, and after due
deliberation,
IT IS HEREBY ORDERED this 28th day of May, 1999, that:
<PAGE>
1. For purposes of settlement only, pursuant to Court of Chancery Rules
23(b)(1) and (b)(2), and pending the Settlement Hearing (defined
below), the Action shall be temporarily maintained as a class action on
behalf of a class consisting of all holders of stock of TII Industries,
Inc. ("TII"), other than defendants and their affiliates, whether
beneficial or of record, during the period from March 8, 1999 until a
record date within 5 business days of the mailing of notice of the
Settlement to such foregoing 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"). The named plaintiffs are temporarily certified as
Class and derivative representatives, and their counsel as Class and
derivative counsel.
2. A hearing (the "Settlement Hearing") shall be held on July 12, 1999, at
10:00 a.m., in the Court of Chancery in the Daniel L. Herrmann
Courthouse, 1020 North King Street, Wilmington, Delaware 19801, to:
(a) determine whether the Class should be certified and whether
plaintiffs and their counsel have adequately represented the
Class and TII;
(b) determine whether the Settlement should be approved by the
Court as fair, reasonable, adequate and in the best interests
of TII and the Class;
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<PAGE>
(c) determine whether judgment should be entered pursuant to the
Stipulation, inter alia, dismissing the Action with prejudice
and on the merits and extinguishing and releas ing all Settled
Claims (as defined in the Stipulation);
(d) rule on an application of plaintiffs' counsel in the Action
("Plaintiffs' Counsel") for an award of attorneys' fees and
the reimbursement of expenses; and
(e) rule on such other matters as the Court may deem appropriate.
3. The Court reserves the right to adjourn the Settlement Hearing or any
adjournment thereof, including the consideration of the application for
attorneys' fees and reimbursement of expenses, without further notice
of any kind other than oral announcement at the Settlement Hearing or
any adjournment thereof.
4. The Court reserves the right to approve the Settlement at or after the
Settlement Hearing with such modification as may be con sented to by
the parties to the Stipulation and without further notice to the Class
or the TII stockholders.
5. Within ten (10) business days after the date of this Order, TII shall
cause a notice of the Settlement Hearing in substantially the form
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<PAGE>
annexed as Exhibit B to the Stipulation (the "Notice") to be mailed by
United States mail, postage prepaid, to all TII stockholders from March
8, 1999 until a record date within 5 business days of the mailing of
Notice of the Settlement to such foregoing stockhold ers at their last
known address appearing in the stock transfer records maintained by or
on behalf of TII. All record holders who are not also the beneficial
owners of the shares of TII stock held by them of record are to be
requested to forward the Notice to such beneficial owners of those
shares. TII shall use reasonable efforts to give notice to such
beneficial owners by making additional copies of the Notice available
to any record holder who, prior to the Settlement Hearing, requests
copies for distribution to beneficial owners.
6. The form and method of notice specified herein is the best notice
practicable and shall constitute due and sufficient notice of the
Settlement Hearing to all persons entitled to receive such notice.
Counsel for defendants shall, no later than ten (10) business days
prior to the Settlement Hearing directed herein, file an appropri ate
affidavit with respect to preparing and mailing the Notice.
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7. Any member of the Class or TII stockholder who objects to the
Settlement, the class action determination, the adequacy of the
representation of the Class and TII by plaintiffs and their counsel,
dismissal of the Action, the judgment to be entered in the Action,
and/or Plaintiffs' Counsel's application for attorneys' fees and
disbursements in the Action, or who otherwise wishes to be heard, may
appear in person or by his attorney at the Settlement Hearing and
present evidence or argument that may be proper and relevant; provided,
however, that no person other than Plaintiffs' Counsel and counsel for
the defendants in the Action shall be heard, and no papers, briefs,
pleadings or other documents submitted by any person shall be
considered by the Court unless not later than ten (10) calendar days
prior to the Settlement Hearing such person files with the Court and
serves upon counsel listed below: (a) a written notice of intention to
appear; (b) a statement of such person's objections to any matters
before the Court; (c) the grounds therefor or the reasons that such
person desires to appear and be heard, as well as all documents or
writings such person desires the Court to consider. Such filings shall
be served upon the following counsel:
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Prickett, Jones, Elliott & Kristol
1310 King Street
P.O. Box 1328
Wilmington, Delaware 19899
Attention: Michael Hanrahan, Esquire
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
Wilmington, Delaware 19801
Attention: Edward P. Welch, Esquire
8. Unless the Court otherwise directs for good reasons shown, no person
shall be entitled to object to the approval of the Settlement, the
class action determination, the adequacy of the representation of the
Class and TII by plaintiffs and their counsel, the judgment to be
entered in the Action, any award of attorneys' fees and reimbursement
of expenses to Plaintiffs' Counsel, or otherwise be heard, except by
serving and filing written objection and support ing papers and
documents as prescribed in paragraph 7. Any person who fails to object
in the manner described above shall be deemed to have waived the right
to object (including any right of appeal) and shall be forever barred
from raising such objection in this or any other action or proceeding.
9. If the Settlement is not approved by the Court or shall not become
effective for any reason whatsoever, the Settlement (including any
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modification thereof) made with the consent of the parties as provided
for in the Stipulation, any Class certification herein and any actions
taken or to be taken in connection therewith (including this Order and
any judgment entered herein) shall be terminated and shall become void
and of no further force and effect except for TII's obligations to pay
for any expense incurred in connection with the Notice to the Class and
administration provided for by this Order, and neither the Stipulation,
nor any provision con tained in the Stipulation, nor any action
undertaken pursuant thereto, nor the negotiation thereof by any party
shall be used in any way as an admission or offered or received as
evidence at any proceeding in this or any other action or proceeding.
10. All proceedings in the Action, other than proceedings as may be
necessary to carry out the terms and conditions of the Settlement, are
hereby stayed and suspended until further order of this Court. Pending
final determination of whether the Stipulation should be approved,
plaintiffs and all members of the Class are barred and enjoined from
commencing or prosecuting any action, and from asserting any claims
that are or relate in any way to the Settled Claims as defined in the
Stipulation.
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<PAGE>
11. Neither the Stipulation nor any provision contained in the Stipulation,
nor any negotiations, statements or proceedings in connection therewith
shall be construed as, or deemed to be evidence of, an admission or
concession on the part of any of the plaintiffs, defendants, any Class
member, or any other person of any liability or wrongdoing by them, or
any of them, and shall not be offered or received in evidence in any
action or proceeding (except, subject to Paragraph 9 of this Order, an
action to enforce the Stipulation and Settlement contemplated thereby),
or be used in any way as an admission, concession or evidence of any
liability or wrongdoing of any nature, and shall not be construed as,
or deemed to be evidence of, an admission or concession that plain
tiffs, any member of the Class, or any other person has or has not
suffered any damage.
/s/ LEO E. STRINE, JR.
---------------------------
LEO E. STRINE, JR.
Vice Chancellor
May 28, 1999
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EXHIBIT B
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
DAVID H. ADDIS and HEMDA Z. :
ADDIS, :
:
Plaintiffs, :
:
v. : Civil Action No. 17032NC
:
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, C. BRUCE BARKSDALE, :
:
Defendants. :
NOTICE OF PENDENCY OF CLASS ACTION, TEMPORARY AND
PROPOSED CLASS ACTION DETERMINATION, PROPOSED
SETTLEMENT OF CLASS AND DERIVATIVE ACTION,
SETTLEMENT HEARING AND RIGHT TO APPEAR
TO: ALL RECORD HOLDERS AND BENEFICIAL OWNERS OF STOCK OF TII INDUSTRIES,
INC. ("TII") ON OR AFTER MARCH 8, 1999, THROUGH _______ __, 1999, AND
THEIR LEGAL REPRESENTATIVES, HEIRS, SUCCESSORS IN INTEREST, ASSIGNEES
OR TRANSFEREES, IMMEDIATE AND REMOTE.
PLEASE READ ALL OF THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR
RIGHTS WILL BE AFFECTED BY THE LEGAL PROCEEDINGS IN THIS LITIGATION. IF
THE COURT APPROVES THE PROPOSED SETTLEMENT, YOU WILL BE FOREVER BARRED
FROM CONTESTING THE FAIRNESS OF THE PROPOSED SETTLEMENT OR FROM
PURSUING THE SETTLED CLAIMS (DEFINED BELOW).
<PAGE>
IF YOU HELD TII STOCK FOR THE BENEFIT OF ANOTHER, PLEASE PROMPTLY
TRANSMIT THIS DOCUMENT TO SUCH BENEFICIAL OWNER.
I. PURPOSE OF THIS NOTICE
The Delaware Court of Chancery (the "Court") has directed that this
Notice be sent to you to inform you of the pendency of the above-captioned
lawsuit (the "Action"), the proposed settlement of the Action (the "Settlement")
and the Court's temporary certification of the Class (defined below) for
purposes of the Settlement, and to give you notice of your right to participate
in a hearing to be held on July 12, 1999, at 10:00 a.m., before the Court in its
courtroom in the Daniel L. Herrmann Courthouse, 1020 North King Street,
Wilmington, Delaware (the "Settlement Hearing"). The purpose of the Settlement
Hearing is to determine whether the Court should approve the proposed Settlement
as fair, reasonable, adequate and in the best interests of the plaintiffs and
the Class and TII and its stockholders and should be approved by the Court;
whether final judgment should be entered thereon, which will, among other
things, dismiss the Action with prejudice and on the merits; whether the Class
should be permanently certified; and whether plaintiffs and their counsel have
adequately represented the interests of TII and the Class in the Action. The
Court may also consider other matters, including the application by plaintiffs'
counsel in the Action for attorneys' fees and reimbursement of expenses.
The Court has determined that, for purposes of the Settlement only, the
Action shall be temporarily maintained as a Class Action under Court of Chancery
Rule 23 and that plaintiffs are certified as Class and derivative
representatives, and that plaintiffs'
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<PAGE>
counsel is certified as Class and derivative counsel, on behalf of all holders
of TII stock on any day during the period from March 8, 1999 to and including
_______ __, 1999, including the legal representatives, heirs, successors in
interest, transferees and assignees of all such foregoing holders and/or
persons, immediate and remote (the "Class"). This Notice describes the rights
you may have under the Settlement and what steps you may take in relation to the
Settlement.
If the Court approves the Settlement, the parties will ask the Court to
enter an Order and Final Judgment permanently certifying the Class and
dismissing the Action with prejudice and on the merits.
THE FOLLOWING RECITATION DOES NOT CONSTITUTE THE FINDINGS OF THE COURT.
IT IS BASED ON THE STATEMENTS OF THE PARTIES AND SHOULD NOT BE
UNDERSTOOD AS AN EXPRESSION OF ANY OPINION OF THE COURT AS TO THE
MERITS OF ANY OF THE CLAIMS OR DEFENSES RAISED BY ANY OF THE PARTIES.
II. BACKGROUND OF THE ACTION
Alfred J. Roach ("Alfred") is the Chairman of the Board of TII. Alfred
is also the sole stockholder of PRC Leasing, Inc. ("PRC"), which has leased
certain equipment to TII since 1982. The equipment is currently the subject of a
July 18, 1991 Equipment Lease between TII and PRC (the "Equipment Lease"). From
October 8, 1998, through the present, defendants Alfred Roach, Timothy Roach,
Dorothy Roach, George S. Katsarakes, James R. Grover, Jr., William G. Sharwell,
Dr. Joseph C. Hogan and C. Bruce Barksdale were directors of TII.
3
<PAGE>
On October 8, 1998, the TII Board approved the repricing of certain
stock options under TII's 1995 Stock Option Plan (the "1995 Plan"). On October
8, 1998, the TII Board proposed a 1998 Stock Option Plan (the "1998 Plan") to
replace certain options under TII's 1983 Stock Option Plan (the "1983 Plan") and
TII's 1986 Stock Option Plan (the "1986 Plan"). At an annual meeting held on
December 8, 1998 (the "1998 Annual Meeting"), TII's common stockholders voted to
approve the proposal.
At the 1998 Annual Meeting, the TII common stockholders also approved
the issuance of more than 1,520,000 shares of TII common stock upon conversion
of TII Series C Convertible Redeemable Preferred Stock ("Series C Stock").
On December 31, 1998, TII and Alfred executed a Stock Purchase
Agreement, pursuant to which TII would acquire the stock of PRC from Alfred in
exchange for 1,176,213 shares of TII common stock valued at $1.87 per share, the
market price of TII's common stock on that date (the "Stock Issuance"). Pursuant
to a notice of meeting and proxy statement dated March 16, 1999, the Stock
Purchase Agreement was to be presented for stockholder approval at an April 20,
1999, special meeting of TII's stockholders (the "1999 Special Meeting").
On March 19, 1999, two holders of shares of TII stock filed a complaint
in the Court of Chancery of the State of Delaware styled 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, C. Bruce
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<PAGE>
Barksdale, C.A. No. 17032NC (the "Action"). The Action was filed individually,
derivatively and as a class action on behalf of an alleged class of holders of
TII stock.
The Complaint alleges that (1) the Stock Purchase Agreement and Stock
Issuance constitute a breach of the fiduciary duties of loyalty, care and
disclosure, are the result of unfair dealing and are grossly unfair to TII and
its public stockholders; (2) TII's purported authorization to issue more than
1,520,000 shares of TII common stock upon conversion of Series C Stock is a
violation of 8 Del. C. ss. 242 and TII's Certificate of Incorporation; and (3)
the granting and repricing of certain stock options pursuant to the 1995 Plan
and the 1998 Plan are invalid and a waste of corporate assets.
The complaint names as defendants TII and the members of the TII Board
identified above. The Action seeks declaratory and injunctive relief, monetary
damages and other relief relating to certain purported rights of TII
stockholders.
III. THE SETTLEMENT
After the filing of the litigation, the parties engaged in arm's-length
negotiations concerning the terms of a possible settlement. On April 7, 1999,
the parties to the Action entered into a Memorandum of Understanding (the "MOU")
contemplating the settlement, pursuant to the terms described in the
Stipulation, of all claims asserted, or that could have been asserted, in the
Action or that arise from or relate to the events described in the Action. The
MOU was subsequently memorialized in a Stipulation and
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<PAGE>
Agreement of Settlement entered into on behalf of the parties to the Action on
May 25, 1999 (the "Stipulation").
Pursuant to the MOU and the subsequent Stipulation, the defendants, in
consideration for the Settlement, have agreed to most of the relief sought by
plaintiffs on behalf of the Class. Specifically:
1. Under the Settlement, TII and Alfred, acting on behalf of himself
and as sole stockholder and director of PRC, will rescind and withdraw the Stock
Purchase Agreement. Accordingly, the Stock Issuance will not occur. Pursuant to
the Settlement, TII has canceled the Special Meeting of the TII stockholders
scheduled for April 20, 1999. In addition, an officer of TII will provide an
affidavit verifying that the equipment which is the subject of 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.
2. The Settlement clarifies that TII has not violated 8 Del. C. ss. 242
or TII's Certificate of Incorporation. 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. Because TII stockholders
approved the issuance of shares of TII common stock upon conversion of the
Series C Stock in excess of 1,520,000 shares at
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<PAGE>
the 1998 Annual Meeting, the issuance by TII of shares in excess of 1,520,000
will not breach TII's obligations under the Nasdaq Rules. Therefore, any such
increased issuance of shares will not violate the Exchange Cap of Section 12 of
the Certificate of Designations of the Series C Stock.
3. Defendants acknowledge that 50,000 options held by Timothy J. Roach
("Timothy"), TII's president and chief executive officer, and 10,000 shares held
by Alfred pursuant to the 1995 Plan (the "Additional 1995 Options") were
inadvertently repriced by the TII Board of Directors on October 8, 1998, but
were to have been repriced in 1999. Pursuant to the Settlement, the Additional
1995 Options were repriced by the TII Board on April 7, 1999 based on the
average of the high and low market price for TII common stock (the "Average
Market Price") on April 7, 1999, the date of the signing of the MOU. On October
8, 1998, the Average Market Price for TII common stock was $1.563. On April 7,
1999, the Average Market Price for TII common stock was $1.594. The Settlement
ensured that Alfred and Timothy Roach were not issued options in 1998 under the
1995 Plan in excess of the amount permitted in the plan.
4. Alfred Roach and Timothy Roach will file amendments to their
respective Schedule 13-Ds reflecting the correct repricing of the Additional
1995 Options in compliance with the foregoing paragraph.
5. 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
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<PAGE>
Timothy pursuant to the 1998 Plan on December 8, 1998, shall be non-qualified
stock options and not incentive stock options. This aspect of the Settlement
will prevent the options from being in violation of the 1995 and 1998 Plans, and
enable TII to deduct any compensation expense under the Internal Revenue Code.
IV. REASONS FOR THE SETTLEMENT
Plaintiffs, through their counsel, have made a comprehensive and
thorough investigation of the claims and allegations asserted in the Complaint,
as well as the facts and circumstances relevant to the Action. In connection
with their investigation, Plaintiffs' counsel has, among other things, carefully
reviewed (i) the Certificate of Incorporation and By-Laws of TII, (ii) numerous
documents filed by TII, Alfred and Timothy with the Securities and Exchange
Commission in connection with the Stock Issuance, Stock Purchase Agreement, the
Equipment Lease, the 1983 Plan, the 1986 Plan, the 1995 Plan, the 1998 Plan and
the Series C Stock, and (iii) the proxy statements disseminated in connection
with the 1998 Annual Meeting and the now-canceled 1999 Special Meeting. In
addition, plaintiffs have obtained verification under oath that the equipment
which is the subject of 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. Plaintiffs' counsel has conducted legal research
concerning the viability and merit of Plaintiffs' claims.
8
<PAGE>
While Plaintiffs believe that the claims asserted in the Action have
merit, they also believe that the settlement provided for herein (the
"Settlement") provides substantial benefits to the Class in that it provides
Class members with most of the relief sought by Plaintiffs in the Action. First,
the Settlement will result in the Stock Purchase Agreement being rescinded and
the Stock Issuance being abandoned, thereby achieving complete success on Counts
I and II of the Complaint. Second, the Settlement clarifies that the approval by
TII's stockholders of the issuance of more than 1,520,000 shares of TII common
stock upon conversion of Series C Stock means that, if TII issues shares in
excess of such amount, that issuance will not violate Nasdaq rules and,
accordingly, will not violate 8 Del. C. ss. 242 or TII's Certificate of
Incorporation. Third, the Settlement will result in the correction of the
potential issuance of shares to Alfred and Timothy Roach in violation of the
1995 Plan, while permitting the issuance of options pursuant to option plans,
including the 1995 Plan and 1998 Plan, which have been approved by TII's
stockholders. In addition to the benefits provided by the Settlement to TII, its
stockholders and the Class, Plaintiffs and their counsel have considered (1) the
attendant risks of litigation and the uncertainty of the outcome of the Action,
(2) the desirability of permitting the Settlement to be consummated as provided
by the terms of this Stipulation, and (3) the conclusions reached by Plaintiffs
and their counsel that (i) under the circumstances, the terms and conditions of
the Settlement are fair, reasonable and adequate, and (ii) that the Settlement
is in the best interests of TII, its stockholders,
9
<PAGE>
Plaintiffs and the members of the Class. In light of all the foregoing
considerations, Plaintiffs, through their counsel, engaged in arm's-length
negotiations with counsel for the defendants in an attempt to achieve the
certainty of a positive outcome of the Action. Plaintiffs believe that the
Settlement proposed herein achieves that result, and have determined that it is
in the best interests of TII, its stockholders, and the Class to settle the
Action on the terms set forth in the Stipulation.
The Defendants have denied and continue to deny that any of them has
committed or has threatened to commit any violation of law or breaches of
fiduciary duty to the Plaintiffs or the members of the Class, but because of the
burden, risk and expense of continued litigation, Defendants consider it to be
in the best interests of TII and all of the stockholders of TII that the Action
be settled and dismissed.
V. CLASS ACTION DETERMINATION
The Court has ordered that, for purposes of the Settlement only, the
Action shall be temporarily maintained as a class action by the named Plaintiffs
as Class representatives and by their respective counsel as Class Counsel,
pursuant to Court of Chancery Rules 23(a), 23(b)(1) and (b)(2), on behalf of the
Class (as defined above).
Inquiries or comments about the Settlement may be directed to the
attention of Class Counsel as follows:
Prickett, Jones, Elliott & Kristol
1310 King Street
P.O. Box 1328
Wilmington, Delaware 19899
Attention: Michael Hanrahan, Esquire
10
<PAGE>
VI. SETTLEMENT HEARING
A Settlement Hearing has been scheduled before the Court in its
courtroom in the Daniel L. Herrmann Courthouse, 1020 North King Street,
Wilmington, Delaware 19801, on July 12, 1999, at 10:00 a.m., to determine
whether: (i) the Settlement is fair, reasonable and adequate and in the best
interests of the Plaintiffs and the Class and TII and its stockholders and
should be approved by the Court; (ii) an Order and Final Judgment in the form
attached as Exhibit C to the Stipulation should be entered dismissing the Action
as to all defendants and with prejudice and on the merits as against the named
plaintiffs and all members of the Class and, except as provided in the
Stipulation, without costs to any party; (iii) the Action should be permanently
certified as a class action; (iv) Plaintiffs and Class counsel adequately
represented the interests of TII and the Class; and (v) if the Court approves
the Settlement and enters the Order and Final Judgment, the Court should grant
the application of Plaintiffs' counsel for attorneys' fees and the reimbursement
of expenses in connection with the Action.
The Court has reserved the right to adjourn the Settlement Hearing from
time to time by oral announcement at such hearing or at any adjournment thereof,
without further notice of any kind. The Court has also reserved the right to
approve the Settlement with or without modification, to enter an Order and Final
Judgment, and to order the payment of attorneys' fees and expenses without
further notice to the Class or the TII stockholders.
11
<PAGE>
The Court has ordered that, pending final determination of whether the
Settlement should be approved, Plaintiffs, all members of the Class and all TII
stockholders are barred and enjoined from commencing or prosecuting any action
or asserting any claims that are or relate in any way to the claims asserted in
the Action.
VII. RIGHT TO APPEAR AND OBJECT
Any member of the Class or TII stockholder who objects to the: (i)
Settlement; (ii) class action determination; (iii) the adequacy of
representation of the Class by Plaintiffs and their counsel; (iv) dismissal of
the Action; (v) the judgment to be entered in the Action; (vi) Plaintiffs'
counsel's application for fees and reimbursement of costs and expenses in the
Action; or (vii) who otherwise wishes to be heard, may appear in person or by
their attorney at the Settlement Hearing and present evidence or argument that
may be proper and relevant. Any person who wants to do so, however, must not
later than ten (10) calendar days prior to the Settlement Hearing file with the
Register in Chancery and serve (i) a written notice of intention to appear, (ii)
a statement of such person's objections to any matters before the Court, (iii)
the grounds therefor or the reasons for such person's desiring to appear and be
heard, as well as all documents or writings such person desires the Court to
consider, upon the following counsel of record:
Prickett, Jones, Elliott & Kristol
1310 King Street
P.O. Box 1328
Wilmington, Delaware 19899
Attention: Michael Hanrahan, Esquire
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<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
Wilmington, Delaware 19801
Attention: Edward P. Welch, Esquire
Any Class member or TII stockholder who does not object to the
Settlement or the request by Plaintiffs' counsel for an award of attorneys' fees
or expenses need not do anything. Unless the Court otherwise directs for good
cause shown, no person will be entitled to object to the approval of the
Settlement, the class action determination, the judgment to be entered in the
Action, the adequacy of representation of the Class and TII by Plaintiffs or
Class Counsel, dismissal of the Action, any award of attorneys' fees and
expenses to Plaintiffs' Counsel, or otherwise be heard, except by serving and
filing written objection and supporting papers and documents in the manner
described above. Any person who fails to object in the manner prescribed above
will be deemed to have waived the right to object (including any right of
appeal) and will be forever barred from raising such objection in this or any
other action or proceeding.
VIII. ORDER AND FINAL JUDGMENT OF THE COURT
If the Court determines that the Settlement is fair, reasonable,
adequate and in the best interests of the Class, the parties will jointly ask
the Court to enter an Order and Final Judgment. The Order and Final Judgment
shall, among other things:
1. certify the Class for purposes of the Settlement pursuant to
Court of Chancery Rules 23(a) and 23(b)(1) and 23(b)(2);
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<PAGE>
2. approve the Settlement and adjudge the terms thereof to be fair,
reasonable, adequate and in the best interests of the Plaintiffs
and the Class and TII and its stockholders, pursuant to Court of
Chancery Rules 23(e) and 23.1;
3. authorize and direct performance of the Settlement in accordance
with its terms and conditions and reserve jurisdiction to
supervise the consummation of the Settlement; and
4. dismiss the Action with prejudice, on the merits and, except as
provided in the Stipulation, without costs to any party, and
release defendants, and each of them, and certain other persons
(described below), from the Settled Claims (defined below).
IX. RELEASE
The Stipulation provides that, if the Court approves the Settlement,
and in consideration of the benefits provided by the Settlement, the Action will
be dismissed with prejudice and on the merits as to each defendant and as
against the named Plaintiffs and all other members of the Class. Under the terms
of the Settlement, 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
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<PAGE>
any Plaintiff or any member of the Class in connection with the subject matter
of the Action (collectively the "Settled Claims"), 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 agents (including,
without limitation, any investment bankers or attorneys) and, as to TII, its
officers, directors, stockholders, controlling persons, employees, or agents
(including, without limitation, any investment bankers or attorneys)
(collectively, the "Released Persons") shall be compromised, settled, released
and dismissed with prejudice, on the merits and, except as provided in the
Stipulation, without costs to any party.
The Stipulation further provides that Plaintiffs and each member of the
Class 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 states:
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,
and any and all provisions, rights and benefits of any similar statute or law of
California or any other jurisdiction.
X. APPLICATION FOR ATTORNEYS' FEES AND EXPENSES
In connection with the presentation of the Settlement for approval by
the Court, Plaintiffs' counsel intends to apply to the Court for an award of
attorneys' fees and
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<PAGE>
expenses in an amount not to exceed in the aggregate $300,000. TII has agreed to
pay the fees and expenses actually awarded by the Court up to $300,000. Except
as stated above, neither TII nor any of the other defendants has agreed to be
liable for any fees or expenses of Plaintiffs or any member of the Class in
connection with the Action.
XI. NOTICE TO PERSONS OR ENTITIES HOLDING
TII SHARES ON BEHALF OF OTHERS
Brokerage firms, banks and/or other persons or entities who held shares
of TII stock on March 8, 1999 through _______ __, 1999 for the benefit of others
are requested promptly to send this Notice to all of their respective beneficial
owners. TII will reimburse the record holders for the out-of-pocket cost of
forwarding this Notice to the beneficial owners. If additional copies of this
Notice are needed for forwarding to such beneficial owners, any requests for
such copies may be made to TII's transfer agent at the following address:
Harris Trust & Savings Bank
Shareholder Services Division
311 West Monroe Street, 11th Floor
Chicago, Illinois 60606
(312) 461-6001
Fax: (312) 765-8052
XII. SCOPE OF THIS NOTICE
This Notice is not all-inclusive. The references in this Notice to the
pleadings in the Action, the Stipulation and other papers and proceedings are
only summaries and do not purport to be comprehensive. For the full details of
the Action, the claims which
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have been asserted by the parties and the terms and conditions of the
Settlement, including a complete copy of the Stipulation, members of the Class
are referred to the Court files in the Action. You or your attorney may examine
the Court files during regular business hours of each business day at the office
of the Register in Chancery, Daniel L. Herrmann Courthouse, 1020 North King
Street, Wilmington, Delaware 19801.
BY ORDER OF THE COURT:
/s/ DIANNE M. KEMPSKI
----------------------
Register in Chancery
Dated: June 2, 1999
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Exhibit C
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
DAVID H. ADDIS and HEMDA Z. :
ADDIS, :
:
Plaintiffs, :
:
v. : Civil Action No. 17032NC
:
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, C. BRUCE BARKSDALE, :
:
Defendants. :
ORDER AND FINAL JUDGMENT
------------------------
The Stipulation and Agreement of Settlement, dated May 25, 1999 (the
"Stipulation"), of the above-captioned action (the "Action"), having been
presented at the Settlement Hearing on July 12, 1999, pursuant to the Scheduling
Order for Approval of Settlement of Class Action entered herein on May 28, 1999
(the "Scheduling Order"), which Stipulation was joined and consented to on
behalf of all parties to the Action and which (along with the defined terms
therein) is incorporated herein by
<PAGE>
reference; and the Court having determined that notice of said hearing was given
in accordance with the Scheduling Order to the stockholders of TII Industries,
Inc. ("TII") and to the members of the Class as certified by the Court in the
Scheduling Order and that said notice was adequate and sufficient; and the
parties having appeared by their attorneys of record; and the attorneys for the
respective parties having been heard in support of the Stipulation and the
settlement of the Action provided therein (the "Settlement"), and an opportunity
to be heard having been given to all other persons desiring to be heard as
provided in the notice; and the entire matter of the Settlement having been
considered by the Court;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED, this ___ day of ________,
1999, as follows:
1. The Notice of Pendency of Class and Derivative Action, Temporary and
Proposed Class Action Determination, Proposed Settlement of Class Action,
Settlement Hearing and Right to Appear ("Notice") has been given to the Class
(as defined hereinafter) and to the TII stockholders, pursuant to and in the
manner directed by the Scheduling Order, proof of the mailing of the Notice was
filed with the Court by counsel for defendants and full opportunity to be heard
has been offered to all parties, all members of the Class, all TII stockholders
and all persons in interest. The form and manner of the Notice is hereby
determined to have been the best notice
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practicable under the circumstances and to have been given in full compliance
with the requirements of the Delaware Court of Chancery Rules 23 and 23.1 and
due process, and it is further determined that all members of the Class and TII
and all stockholders of TII are bound by the Order and Final Judgement herein.
2. Pursuant to Court of Chancery Rules 23(a) and 23(b)(1) and
23(b)(2):
(a) The Court finds that (i) the Class, as defined below, is
so numerous that joinder of all members is impracticable, (ii) there are
questions of law and fact common to the Class, (iii) the claims of the
plaintiffs are typical of the claims of the Class, (iv) the plaintiffs will
fairly and adequately protect the interests of the Class, and (v) questions of
law and fact common to the members of the Class predominate over any question
affecting only individual members, and that a class action is superior to other
available methods for the fair and efficient adjudication of the controversy;
(b) The Court finds that plaintiffs and their counsel have
adequately represented the interests of the Class with respect to the Action and
the claims asserted therein;
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(c) The Court finds that the requirements of Court of Chancery
Rules 23(b)(1) and 23(b)(2) have been satisfied;
(d) The Action is hereby certified as a class action of all
holders of stock of TII and or all persons who held TII stock on any day during
the period from March 8, 1999 to and including June 4, 1999, including the legal
representatives, heirs, successors in interest, transferees and assignees of all
such foregoing holders and/or persons, immediate and remote (the "Class"); and
Plaintiffs are hereby certified as Class and derivative representatives and
their respective counsel is certified as Class and derivative counsel.
(e) Plaintiffs are hereby certified as Class and derivative
representatives and their respective counsel is certified as Class and
derivative counsel.
3. The Settlement, and all transactions preparatory or incident
thereto, are found to be fair, reasonable and adequate and in the best interests
of the Class, TII and its stockholders, and the Settlement is hereby approved.
The parties to the Stipulation are hereby authorized and directed to comply with
and to consummate the Settlement in accordance with its terms and provisions;
and the Register in Chancery is directed to enter and docket this Order and
Final Judgment in the Action.
4. This Order and Final Judgment shall not constitute any evidence or
admission by any party herein that any acts of wrongdoing have
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<PAGE>
been committed by any of the parties to the Action and should not be deemed to
create any inference that there is any liability therefor.
5. The Action is hereby dismissed with prejudice as to all defendants
and against plaintiffs and all other members of the Class on the merits without
costs except as provided in the Stipulation. 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 (collectively the
"Settled Claims"), 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 agents (including, without limitation, any
investment bankers or attorneys) and, as to TII, its officers, directors,
stockholders, controlling persons, employees, or agents (including, without
limitation, any investment bankers or attorneys) (collectively, the "Released
Persons") shall be compromised, settled, released and dismissed with prejudice,
on the merits and, except as provided in the following Paragraph, without costs
to any party. Dismissal of the Settled
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Claims with prejudice and on the merits is effective immediately upon the entry
of this Order and Final Judgment and without any further action by the Court.
6. Plaintiffs' attorneys are hereby awarded fees and expenses in the
aggregate amount of $______________ in connection with the Action, which fees
and expenses the Court finds to be fair and reasonable and which shall be paid
to plaintiffs' attorneys in accordance with the terms of the Stipulation.
7. Without affecting the finality of this Order and Final Judgment, the
Court reserves jurisdiction of all matters relating to the consummation and
administration of the Settlement.
-------------------------------------
Vice Chancellor
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