Exhibit
10.2
CONFIDENTIAL
AND WITHOUT PREJUDICE
FOR
SETTLEMENT PURPOSES ONLY
SUBJECT TO FED. R. OF EVIDENCE. 408
MEMORANDUM
OF UNDERSTANDING AMONG PLAINTIFFS AND
DEFENDANTS
IN IN
RE INFOSONICS CORPORATION DERIVATIVE
LITIGATION,
Lead Case No. 06-CV-1336 JLS (WMc)
This
Memorandum of Understanding (“MOU”) contains the material terms of a settlement
(the “Settlement”) and release and dismissal, with prejudice, of any and all
claims that were asserted, or could have been asserted, in or relating to
In
re
InfoSonics Derivative Litigation,
Case No. 06-CV-1336 JLS (WMc) of Caridad Miller and Jason Haggerty (“Co-Lead
Plaintiffs”) and Plaintiff Peter Cunningham (collectively, “Plaintiffs”),
individually and derivatively on behalf of InfoSonics Corporation (“InfoSonics”
or the “Company”), against Nominal Defendant InfoSonics and defendants Joseph
Ram, Jeffrey A. Klausner, Joseph C. Murgo, Robert S. Picow, Kirk A. Waldron,
Randall P. Marx and Abraham G. Rosler (the “Individual Defendants”)
(collectively, with Nominal Defendant InfoSonics, referred to as “Defendants”)
in the above -referenced action (the “Action”) pending in the United States
District Court for the Southern District of California (the “Court”).
Plaintiffs
and Defendants (collectively the “Parties”) contemplate that this MOU will be
superceded by a more detailed “Stipulation of Settlement” incorporating the
terms and conditions set forth herein and other customary terms and conditions
as agreed upon by counsel for the Parties. Among other terms and conditions
below, the Settlement is subject to execution of a Stipulation of Settlement,
court approval of the Stipulation of Settlement following a noticed hearing,
and
dismissal with prejudice of the Action.
1. InfoSonics
will agree to implement the following corporate governance changes and maintain
them in effect for at least five (5) years from entry of a court order approving
the Stipulation of Settlement, which has become final, except to the extent
advisable or necessary to address changes in applicable state laws, federal
laws, and self-regulatory organization (“SRO”) rules (such as
NASDAQ):
a. The
Company’s outside counsel shall be involved in all grants of stock options and
be primarily responsible for the record keeping, resolutions, and minutes with
respect to stock option grants.
b. The
Company will change audit partners no less frequently than every five
years.
c. Each
director of the Company will be encouraged to attend in person or telephonically
at least 80% of all Board and committee meetings.
d. The
Audit
Committee may hire independent consultants who report directly to the Audit
Committee at the Company’s expense as the Audit Committee deems appropriate in
its sole judgment.
e. The
Company will ask its outside auditor to identify the stock option granting
process as a “high risk” audit item and ask the outside auditor to conduct its
audit accordingly.
CONFIDENTIAL
AND WITHOUT PREJUDICE
FOR
SETTLEMENT PURPOSES ONLY
SUBJECT TO FED. R. OF EVIDENCE. 408
f. The
Audit
Committee shall meet with the Company’s outside auditor at least annually to
discuss the Company’s accounting for stock-based compensation.
g. The
Company will request its Chief Executive Officer (“CEO”) to increase the amount
of time he spends meeting with the Company’s outside auditor as part of the
year-end audit process.
h. The
Company’s CEO will acknowledge, to the extent required by the current
certifications in the Company’s Form 10-Qs and 10-Ks, responsibility for the
Company’s accounting controls.
i. The
Company shall revise its corporate governance principles, by-laws and/or
articles of incorporation to the extent necessary to require that a majority
of
the members of the Board be independent. An “independent” director shall be
defined by the SEC rules and/or the NASDAQ rules. Essentially, an independent
director is one who:
(1) is
not,
and in the past five years has not been, employed by the Company or any of
its
subsidiaries or affiliates;
(2) does
not
receive, and in the past five years has not received, any remuneration as an
advisor, consultant, or legal counsel to the Company or any of its subsidiaries,
affiliates, executive officers, or directors;
(3) does
not
have, and in the past five years has not had, any contract or agreement with
the
Company or any of its subsidiaries or affiliates pursuant to which the director
performed or agreed to perform any personal services for the
Company;
(4) does
not
have, and in the past five years has not had, any relationship or engaged in
any
transaction with the Company or any of its subsidiaries or affiliates other
than
his or her service as a director;
(5) is
not,
and in the past five years has not been, affiliated with or employed by any
present or former independent auditor of the Company or any of its subsidiaries
or affiliates;
(6) is
not,
and in the past five years has not been, a director or executive officer of
any
Company for, which any executive officer of the Company serves as a director;
and
(7)
is not a
member of the immediate family of a person who is not independent pursuant
to
subsections (1) to (7) above.
CONFIDENTIAL
AND WITHOUT PREJUDICE
FOR
SETTLEMENT PURPOSES ONLY
SUBJECT TO FED. R. OF EVIDENCE. 408
j. The
Company’s Board shall establish a policy which requires the independent
directors to meet in an executive session at least four times a year or at
each
formal, in-person meeting of the full Board, and require that the Board report
to shareholders the number of such meeting held each year.
k. The
Company shall revise its corporate governance policy to require that an
independent director sit on no more than three additional public company boards,
and that the CEO of the Company and the Chairman of the Board each sit on no
more than one other such board.
l. Any
Company stock option or other similar plan shall provide an objective,
measurable and fair mechanism for pricing stock options.
m. All
future Company stock option or other similar plan (“Stock Option Plan”) shall
clearly define the exercise price, the grant date and the fair market value
of
stock (e.g., the closing price on a specified date, or the average closing
price
over a specified period). Subject to section 14 (b) below, in no event shall the
exercise price or value of an award be determined by reference to the fair
market value of the Infosonics stock on a day other than the grant date of
the
award. The fair market value of Infosonics stock on a grant date shall be the
closing price for a share of common stock on such day as reported on the NASDAQ.
n. Company
Stock Option Plans shall provide:
(1) The
exercise price for each option grant shall be at least 100 percent of the
closing market price on the date of grant; and
(2) If
the
option grant is held close to an earnings release, the pricing of the grant
shall be the closing price on the third trading day following the earnings
release.
o. Company
Stock Option Plans shall comply with legal, professional and ethical
requirements for proper disclosure and proper accounting and shall provide
appropriate documentation for proper disclosure and accounting.
p. The
Company shall either instruct its outside counsel to file SEC Forms 3, 4 and
5
for requesting officers and directors in connection with Stock Option Plans,
or
else the Company’s Stock Option Plan shall identify who is responsible for
completing and filing SEC Forms 3, 4 and 5.
q. The
Company’s process for granting executive non-cash compensation shall have the
same transparency and be consistent with the process and methodology for
determining executive cash compensation.
r. The
authority to grant stock option awards should be limited to the full Board
or to
a properly constituted Compensation Committee. If stock option awards are made
by the Compensation Committee, no executive officer shall serve as a member
of
the Compensation Committee.
CONFIDENTIAL
AND WITHOUT PREJUDICE
FOR
SETTLEMENT PURPOSES ONLY
SUBJECT TO FED. R. OF EVIDENCE. 408
s. As
a
general rule, all grants shall be made at a meeting of the Infosonics Board
or a
properly constituted Compensation Committee, rather than by unanimous written
consent. Corporate counsel shall be requested to attend any and all meetings
where options are granted and shall promptly prepare minutes of the
meeting.
t. The
Compensation Committee may not delegate authority to a sub-committee to grant
stock options.
u. The
body
authorized to grant stock options shall be specified in the Compensation
Committee Charter and any current and/or subsequent equity incentive plan,
whether subject to stockholder approval or not.
2.
InfoSonics, the Individual Defendants and their Related Parties (defined below)
will receive broad releases of all Released Claims (defined below) that were
or
could have been brought based upon or arising out of the allegations in the
Derivative Actions, including any derivative claims relating to settlement
of
the Action as follows:
a. “Related
Parties” means each of a released party’s past, present or future directors,
officers, employees, partnerships, partners, members, principals, agents,
underwriters, insurers, co-insurers, reinsurers, controlling shareholders,
attorneys, accountants or auditors, advisors, banks or investment banks or
bankers, analysts, associates, personal or legal representatives, predecessors,
successors, parents, subsidiaries, divisions, joint ventures, assigns,
executors, administrators, spouses, heirs, related or affiliated entities,
any
entity in which a party and/or any member of a party’s immediate family has a
controlling interest, any members of their immediate families, or any trust
of
which any party is the settler or which is for the benefit of any party and/or
member(s) of his or her family. Defendants and their respective Related Parties
are collectively “Released Parties.”
b. “Released
Claims” shall collectively mean any and all claims, rights or causes of action
or liabilities whatsoever, whether based on federal, state, local, statutory
or
common law or any other law, rule or regulation (whether foreign or domestic),
including both known and Unknown Claims (defined below), accrued claims and
not
accrued claims, foreseen claims and unforeseen claims, matured claims and not
matured claims, that have been or could have been asserted from the beginning
of
time to the date of the entry of an order of final judgment on the settlement
in
any forum by InfoSonics, or by any InfoSonics shareholder on behalf of
InfoSonics, against any of the Released Parties which arise out of or relate
in
any way to the allegations, transactions, facts, matters or occurrences,
representations or omissions involved, set forth, referred to in the Action,
or
that arise out of or relate in any way to settlement of the Action including
this MOU and any actions or inactions relating thereto.
c. “Unknown
Claims” means any claim that the Parties and any other persons and entities
whose claims are being released do not know or suspect to exist in their favor
at the time of the release which, if known by him, her, might have affected
the
decision to compromise the claims, or the decision whether to agree, object,
or
not object to the settlement and release. Upon the effective date of a final
settlement, the settling Parties and any other
CONFIDENTIAL
AND WITHOUT PREJUDICE
FOR
SETTLEMENT PURPOSES ONLY
SUBJECT TO FED. R. OF EVIDENCE. 408
persons or entities whose claims are being released shall
expressly waive and relinquish, to the fullest extent permitted by law, the
provisions, rights, and benefits conferred by §1542 of the California Civil Code
and by any law of any state or territory of the United States, or principle
of
common law, or of international or foreign law, which is similar, comparable
or
equivalent to §1542 of the California Civil Code. Section 1542
provides:
A
GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS, WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR
AT
THE TIME OF EXECUTED THE RELEASE, WHICH IF KNOWN BY
HIM OR
HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT
WITH THE DEBTOR
The
settling Parties may hereafter discover facts in addition to or different from
those which he, she or it now knows or believes to be true with respect to
the
subject matter of this release, but it is their intention to finally and forever
settle and release the claims notwithstanding any Unknown Claims they may have,
as that term is defined in this paragraph.
The
foregoing does not represent the precise wording of the release, but rather
is
intended to paraphrase the intent of such a general release. The release of
Defendants and their Related Parties shall be part of the Stipulation of
Settlement and Final Judgment in this Action.
3.
The
Defendants agree not to oppose an application for attorney’s fees by Plaintiffs
of up to an aggregate of $350,000.00 (three hundred and fifty thousand dollars),
inclusive of all costs and expenses. InfoSonics will pay or cause its insurer
AIG (National Union Fire Insurance Co. of Pittsburg, PA) (“AIG”) to pay the
attorney’s fees awarded by the Court up to the capped sum of $350,000.00 (three
hundred and fifty thousand dollars) (the “Settlement Fee”) within seven (7)
business days after judgment in this Action becomes final and after the
expiration of any appeals period or after being affirmed on appeal (the “Payment
Date”). InfoSonics and the Individual Defendants shall have no obligation to
fund any award of fees and costs in excess of the agreed upon cap. The
Individual Defendants shall have no obligation to fund any of the Settlement
Fee.
4. Plaintiffs
acknowledge that this Settlement is contingent on the settlement of In
re
InfoSonics Securities Litigation,
Case
No. 06-CV-1231 JLS (WMc). Plaintiffs agree: (a) to use their best efforts to
coordinate with and facilitate the settlement in In
Re
InfoSonics Securities Litigation;
(b) to
not unreasonably delay the settlement process in this Action or in In
Re
InfoSonics Securities Litigation;
(c) to
have joint court hearings, if possible, for preliminary approval, final
approval, and other matters in connection with the settlement of this Action
and
In
Re
InfoSonics Securities Litigation;
(d) to
allow for notice of this Settlement and the In
Re
InfoSonics Securities Litigation settlement
to be provided jointly to InfoSonics’ stockholders, in a notice that will be
provided by plaintiffs in In
Re
InfoSonics Securities Litigation,
provided that Plaintiffs herein shall bear no costs of notice, and/or to
otherwise allow for notice to InfoSonics’ stockholders via means other than
first-class mail (such as via a public SEC filing), again provided that
Plaintiffs herein shall bear no costs of notice; and (e) to cooperate with
the
plaintiffs and defendants in In
Re
InfoSonics Securities Litigation
to
facilitate the timely and adequate notice of settlement. As long as this MOU
and
the Stipulation of Settlement remain in effect, the Parties agree to cooperate
and use all reasonable efforts to secure the joint hearings of the dismissal
of
In
re
InfoSonics Securities Litigation.
CONFIDENTIAL
AND WITHOUT PREJUDICE
FOR
SETTLEMENT PURPOSES ONLY
SUBJECT TO FED. R. OF EVIDENCE. 408
5. This
MOU
and the Stipulation of Settlement is conditioned upon final Court approval
of
the Settlement. Plaintiffs will seek approval of the Stipulation of Settlement
upon appropriate notice (at no expense to Plaintiffs herein) as may be approved
by the Court. The Parties shall negotiate in good faith and execute a definitive
Stipulation of Settlement and such other documentation as may be required to
obtain final Court approval of the settlement upon the terms contained herein.
The eventual Stipulation of Settlement between the Parties shall explicitly
provide that in the event that the Settlement fails to achieve final approval
and/or the judgment fails to become final after the expiration of any appeals
period or after being affirmed on appeal, or fails for any other reason, the
Settlement Fee shall not be due, and if it has otherwise been paid, it shall
be
refunded to InfoSonics and/or AIG, respectively, to the extent each funded
the
Settlement Fee, together with interest at the legal rate, no later than twenty
(20) business days after the event giving rise to the termination of the
Settlement. This provision shall survive any other failure of the Stipulation
of
Settlement, and may be specifically enforced by the Court.
6. This
MOU
and the Stipulation of Settlement is also conditioned upon final Court approval,
after appropriate notice, of the settlement in In
re
InfoSonics Securities Litigation.
The
eventual Stipulation of Settlement between the Parties herein shall explicitly
provide that in the event that the In
re
InfoSonics Securities Litigation
memorandum of understanding and/or stipulation of settlement fails to achieve
final approval and/or the judgment fails to become final after the expiration
of
any appeals period or after being affirmed on appeal, or fails for any other
reason, Defendants have the option of voiding this MOU and/or the Stipulation
of
Settlement in this Action. In such event, the MOU/Stipulation of Settlement
shall be null and void, Lead Counsel shall jointly and severally be responsible
for refunding the Settlement Fee to InfoSonics and/or AIG, respectively, to
the
extent each funded the Settlement Fee, together with interest at the legal
rate,
no later than twenty (20) business days after notice by InfoSonics that it
is
exercising its option of voiding the MOU/Stipulation of Settlement in this
Action. This provision shall survive any other failure of the MOU/Stipulation
of
Settlement, and may be specifically enforced by the Court.
7.
Defendants deny any liability or responsibility for the claims made in the
Action and make no admission of any wrongdoing. This MOU and all negotiations,
discussions and proceedings in connection with this MOU shall not constitute
any
evidence or be an admission by any of the Defendants that any acts or wrongdoing
have been committed and shall not be deemed to create any inference that there
is any liability on the part of any of the Defendants. This MOU and all
negotiations, discussions and proceedings in connection with this MOU, shall
not
be offered or received in evidence or used for any other purpose in this or
any
other proceeding in any court, administrative agency, arbitration forum, or
other tribunal other than as may be necessary to enforce the terms of the MOU.
The Stipulation of Settlement and the Final Judgment shall provide that
Defendants deny all liability and make no admission of any wrongdoing.
CONFIDENTIAL
AND WITHOUT PREJUDICE
FOR
SETTLEMENT PURPOSES ONLY
SUBJECT TO FED. R. OF EVIDENCE. 408
8. The
final
order and judgment shall contain a provision providing for the dismissal of
the
Action with prejudice and without costs, except as otherwise provided in the
Stipulation of Settlement.
9. This
MOU
shall be binding upon the Parties, and inure to the benefit of the successors,
assigns, executors, administrators, heirs, insurers, and legal representatives
of the Parties hereto, provided, however, that no assignment by any party shall
operate to relieve such party of its obligations hereunder. This MOU shall
also
inure to the benefit of the parties to In
Re
InfoSonics Securities Litigation.
10. This
MOU
shall be governed by the laws of the State of California, without regard to
its
conflict of law rules.
11. This
MOU
may be signed in counterparts and transmitted by facsimile or other electronic
means.
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Dated:
August 6, 2008
|
Dated:
August 6, 2008
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|
JOHNSON
BOTTINI, LLP
|
LATHAM
& WATKINS LLP
|
|
FRANK
A. BOTTINI
|
PETER
H. BENZIAN
|
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KIMBERLY
AROUH HICKS
|
| |
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| |
|
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/s/
Frank A. Bottini
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|
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Counsel
for Plaintiffs
|
Counsel
for InfoSonics Corporation,
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| |
Joseph
Ram, Jeffrey A. Klausner,
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Joseph
C. Murgo, Robert S. Picow,
|
| |
Kirk
A. Waldron, Randall P. Marx and
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Abraham
G. Rosler
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