Exhibit 10.1

 

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF DELAWARE

 

EDWARD IONNI, derivatively on behalf of

 

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ITERIS, INC. and individually and on behalf of

 

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himself and all other similarly situated stockholders

 

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of ITERIS, INC.

 

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Plaintiff,

 

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v.

 

)  C.A. No. 16-cv-00807-RGA

 

 

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JOE BERGERA, RICHARD CHAR, KEVIN C.

 

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DALY, GREGORY A. MINER, ABBAS

 

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MOHADDES, GERARD M. MOONEY,

 

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THOMAS L. THOMAS, MIKEL H. WILLIAMS,

 

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AND ITERIS, INC.

 

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Defendants.

 

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and

 

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ITERIS, INC.,

 

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Nominal Defendant.

 

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MEMORANDUM OF UNDERSTANDING

 

This Memorandum of Understanding (“MOU”) is entered into as of November 8, 2016,
by and among the undersigned parties to the above-captioned action (the
“Parties”).

 

WHEREAS, on September 15, 2016, plaintiff Edward Ionni (“Plaintiff”) initiated
the above-captioned action (the “Action”) by filing a complaint (the
“Complaint”) in the United States District Court for the District of Delaware
(the “Court”) against defendants Joe Bergera, Richard Char, Kevin C. Daly,
Gregory A. Miner, Abbas Mohaddes, Gerard M. Mooney, Thomas L. Thomas, Mikel H.
Williams (collectively, the Individual Defendants”) and Iteris, Inc. (the
“Company,” and together with the Individual Defendants, “Defendants”);

 

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WHEREAS, the Complaint asserts derivative claims, purportedly brought on behalf
of the Company, and a class claim, purportedly brought on behalf of a class of
the Company’s common stockholders other than Defendants and their affiliates;

 

WHEREAS, the Complaint challenges the stockholder approval in 2014 and 2015 of
amendments to the Iteris 2007 Omnibus Incentive Plan (the “Plan”) that increased
by 2,500,000 shares (i.e., 1,500,000 in 2014 and 1,000,000 in 2015) the number
of shares of Iteris common stock reserved for issuance under the Plan
(collectively, the “Amendments”).

 

WHEREAS, the Complaint alleges that the Defendants breached their fiduciary
duties by causing the Company to issue purportedly false and misleading proxy
statements in connection with the Amendments;(1)

 

WHEREAS the Complaint alleges that the Proxy Statements were materially false
and misleading because, among other things, in describing the principal features
of the Plan, the Proxy Statements represented that no person could receive more
than 500,000 stock options or stock appreciation rights under the Plan during
any fiscal year (the “Limit”).

 

WHEREAS, the Complaint also alleges that defendant Bergera was unjustly enriched
because in September 2015, in connection with his appointment to serve as
President and CEO of the Company, Bergera was granted 1,350,000 stock options
under the Plan (the “CEO Grant”), which was purportedly 850,000 shares above the
500,000 share Limit  described in the Proxy Statements;

 

WHEREAS, counsel for Plaintiff and Defendants have engaged, on behalf of their
clients, in arm’s-length negotiations concerning a possible resolution of the
Action and have

 

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(1)  On September 8, 2014, Iteris filed a Schedule 14A Definitive Proxy
Statement with the SEC in connection with the 2014 Annual Meeting of
Stockholders.  On July 29, 2015, Iteris filed a Schedule 14A Definitive Proxy
Statement with the SEC in connection with the 2015 Annual Meeting of
Stockholders. These documents are referred to herein as the “Proxy Statements.”

 

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negotiated an additional proposal for Iteris to submit to its stockholders in
connection with its upcoming 2016 annual meeting (the “Supplemental Proposal,”
further defined below);

 

WHEREAS, based on the Supplemental Proposal, the Parties have reached an
agreement in principle to settle the Action (the “Settlement”) on the terms and
subject to the conditions set forth in this MOU;

 

WHEREAS, Defendants have denied, and continue to deny, that they have breached
their fiduciary duties or engaged in any of the wrongful acts alleged in the
Complaint;

 

WHEREAS, Defendants maintain that the Proxy Statements fully disclosed all
material information to the Company’s stockholders, that the Amendments were
properly approved by the Company stockholders, and that all stock awards granted
under the Plan were valid, including the CEO Grant;

 

WHEREAS, Defendants maintain that they are entering into this MOU solely to
eliminate the burden, expense, and uncertainty of further litigation; and

 

WHEREAS, Plaintiff believes that the claims in the Action were brought in good
faith and continues to believe that those claims have merit, but nevertheless
Plaintiff has determined that the terms contained in this MOU are fair and
adequate to both Iteris and its stockholders and that it is appropriate and
desirable to pursue a settlement of the Action based upon those terms;

 

NOW THEREFORE IT IS HEREBY STIPULATED AND AGREED, by and among the Parties:

 

1.                                      Stipulation of Settlement.  As soon as
practicable after the execution of this MOU, the Parties agree to seek to
negotiate in good faith and execute an appropriate Stipulation of Settlement
(the “Stipulation”), and will present to the Court the Stipulation and such
other

 

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documentation as may be necessary to obtain the Court’s Final Approval (defined
below) of the Settlement.

 

2.                                      Consideration from Defendants.  In
consideration for the full and final settlement and release of all Released
Claims (defined below) by Plaintiff and the Class (defined below) and the
dismissal with prejudice of the Action, Iteris agrees, in connection with its
upcoming 2016 annual meeting, to submit a proposal, substantially in the form
attached hereto as Exhibit A, seeking approval from  the Company’s stockholders
to ratify and approve the 850,000 stock options granted in excess of the Limit
to defendant Bergera as part of the CEO Grant (the “Supplemental Proposal”). 
Before executing this MOU, Plaintiff’s counsel was provided with an opportunity
to provide comments on the Supplemental Proposal.  As a condition of this
Settlement, neither Plaintiff nor their counsel will seek any additional
proposal or disclosures to the Company’s stockholders, or contend that any
additional proposal or disclosures are required.  Without admitting any
wrongdoing, Defendants acknowledge that Plaintiff’s prosecution of the Action
was the cause of Iteris’ decision to submit the Supplemental Proposal to the
Company’s stockholders for a binding vote.

 

3.                                      Consideration from Plaintiff.  In
consideration of the benefits provided to Plaintiff and the Class in paragraph
2, Plaintiff agrees that the Stipulation shall provide for the dismissal with
prejudice of the Action, and shall provide Defendants with a release of claims
as described herein, following the Court’s Final Approval of the Settlement. 
The term “Final Approval” of the Settlement means that the Court has entered a
final order and judgment certifying the Class for settlement purposes only,
approving the Settlement, dismissing the Action with prejudice and with each of
the Parties to bear its own costs and providing for the releases set forth in
paragraph 6 below, and that such final order and judgment is no longer

 

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subject to further appeal or review, whether by affirmance, by exhaustion of any
possible appeal or review, by lapse of time, or otherwise.

 

4.                                      Stay Pending Final Approval.  The
Parties agree that, pending Final Approval of the Stipulation, it is appropriate
for all proceedings in the Action, except for those related to the Settlement,
to be stayed.  Plaintiff agrees not to initiate any other proceedings other than
those that are incidental to the Settlement itself.

 

5.                                      Cooperation in Other Litigation.  If,
before Final Approval of the proposed Settlement by the Court, any action was or
is filed in any court asserting claims that are related to the subject matter of
the Action, then the Parties agree to use their best efforts to prevent, stay,
seek dismissal of, or oppose entry of any interim or final relief in any other
litigation against any of the Parties that challenges the Settlement or
otherwise involves a Released Claim.

 

6.                                      Terms of the Stipulation.  The
Stipulation shall provide, among other things:

 

a.                                      for the certification, pursuant to
Rule 23 of the Federal Rules of Civil Procedure, of a non-opt-out class that
includes any and all record holders and beneficial owners of common stock of
Iteris who held or owned such stock on August 21, 2014 through and including
October 31, 2016, which is the record date for the 2016 Annual Meeting (the
“Class Period”), including any and all of their respective
successors-in-interest, successors, predecessors-in-interest, predecessors,
representatives, trustees, executors, administrators, estates, heirs, legatees,
devisees, assigns and transferees, immediate and remote, and any other person or
entity acting for or on behalf of any of the foregoing (the “Class”); provided
that the Class shall not include Defendants and their immediate family members,
any entity in which any Defendant has a controlling interest, and any
successors-in-interest thereto; and provided further

 

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that certification of the Class is for settlement purposes only, is dependent on
Final Approval, and shall be null and void in the event that Final Approval is
not obtained;

 

b.                                      for the full and complete discharge,
dismissal with prejudice on the merits, settlement and release of, and a
permanent injunction barring, any and all claims, demands, rights, actions or
causes of action, liabilities, damages, losses, obligations, judgments, suits,
fees, expenses, costs, matters and issues of any kind or nature whatsoever,
whether known or unknown, contingent or absolute, suspected or unsuspected,
disclosed or undisclosed, matured or unmatured, that Plaintiff or any or all
other members of the Class (collectively, the “Releasing Parties”), ever had,
now have, or may have against any or all of Defendants and/or their respective
families, parent entities, associates, affiliates or subsidiaries, and each and
all of their respective past, present or future officers, directors,
stockholders, agents, representatives, employees, attorneys, financial or
investment advisors, other advisors, consultants, accountants, investment
bankers, commercial bankers, trustees, engineers, insurers, co-insurers and
reinsurers, heirs, executors, trustees, general or limited partners or
partnerships, limited liability companies, members, personal or legal
representatives, estates, administrators, predecessors, successors and assigns,
whether or not any such person or entity was served or appeared in the Action
(collectively, the “Released Persons”), whether based on state, local, foreign,
federal, statutory, regulatory, common or other law or rule (including, but not
limited to, any claims under federal securities laws or state disclosure law or
any claims that could be asserted derivatively on behalf of Iteris), which have
been, could have been, or in the future can or might be asserted in the action
or in any court, tribunal or proceeding, and which have arisen, could have
arisen, arise now or hereafter arise out of, or relate in any manner to the
allegations, facts, events, acquisitions, matters, acts, occurrences,
statements, representations, misrepresentations,

 

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omissions, or any other matter related in any way to: (i) the Plan, as amended
by the Amendments; (ii) the fiduciary obligations of any of the Defendants or
Released Persons in connection with the Plan, as amended by the Amendments;
(iii) the disclosures or disclosure obligations of any of the Defendants or
Released Persons in connection with the Plan; (iv) any alleged improper benefit
to any individual in connection with the Plan; (v) the Supplemental Proposal;
and (vi) the allegations that were asserted or could have been asserted in the
Action (collectively, the “Released Claims”); provided, however, that the
Settled Claims shall not include claims to enforce the Settlement;

 

c.                                       for the release by Defendants of
Plaintiff and counsel for Plaintiff from all claims, complaints, liabilities,
petitions, or sanctions arising out of the investigation, commencement,
prosecution, settlement, or resolution of the Action; provided, however, that
such release will not include a release of the right to enforce the Settlement;
and

 

d.                                      a statement that: (a) the release
contemplated by the settlement shall extend to claims that the Releasing Parties
do not know or suspect to exist at the time of the release, which if known,
might have affected the Releasing Parties’ decision to enter into the release;
(b) the Releasing Parties shall be deemed to relinquish, to the extent
applicable, and to the full extent permitted by law, the provisions, rights and
benefits of Section 1542 of the California Civil Code, which states that:

 

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 EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

 

and (c) the Releasing Parties shall be deemed to waive any and all provisions,
rights and benefits conferred by any law of any state or territory of the United
States, or principle of common law,

 

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which is similar, comparable or equivalent to California Civil Code
Section 1542.  Plaintiff acknowledges, and the members of the Class by operation
of law shall be deemed to have acknowledged, that the inclusion of this
provision was separately bargained for and was a material element of the
settlement and was relied upon by each and all of Defendants in entering into
the settlement.

 

7.                                      Consummation of Settlement. The
consummation of the Settlement is expressly conditioned on and subject to the
following conditions: (a) the drafting and execution of the Stipulation (as
defined in paragraph 1); (b) submission of the Supplemental Proposal to the
Company’s stockholders in connection with the 2016 Annual Meeting; and (c) Final
Approval by the Court of the Settlement and entry of a final order and judgment
by the Court (and the exhaustion of possible appeals, if any) dismissing the
Action with prejudice, and providing for releases substantially in the form
contained in this MOU.

 

8.                                      Notice.  Iteris shall be responsible for
providing notice of the proposed Settlement to the members of the Class and
Iteris shall pay all costs and expenses incurred in providing notice of the
Settlement to the members of the Class.

 

9.                                      Attorneys’ Fees.  The Parties agree that
Plaintiff is entitled to an award of reasonable attorneys’ fees and
reimbursement of expenses in connection with the Settlement.  To date, the
Parties have had no discussions concerning any amount of attorneys’ fees or
expense reimbursement.  If the Court grants preliminary approval of the
Settlement and after agreeing upon all other terms of the Stipulation, then the
Parties will negotiate in good faith to reach agreement on an appropriate award
of attorneys’ fees and reimbursement of expenses, subject to approval by the
Court.  If the Parties are unable to reach an agreement, then Plaintiff reserves
the right to submit an application to the Court for an award of attorneys’ fees
and reimbursement of

 

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expenses, and Defendants reserve all rights to oppose any such application. 
Execution of the Stipulation shall not be contingent on an agreement on
attorneys’ fees and reimbursement of expenses.  Neither Plaintiff nor any member
of the Class shall have any right to terminate or withdraw from the Settlement
by reason of any order or other proceeding (including, without limitation, any
appeals) relating to any application by Plaintiff for attorneys’ fees and/or
expenses.

 

10.                               Representations and Warranties.  This MOU will
be executed by counsel for the Parties, each of whom represents and warrants
that he or she has authority from his or her respective client or clients to
enter into this MOU and bind his or her respective client or clients thereto. 
Plaintiff’s counsel further represents that Plaintiff has been a continuous
stockholder of Iteris at all relevant times and has not assigned, encumbered, or
otherwise transferred, in whole or in part, the claims in the Action.

 

11.                               Governing Law.  This MOU, the Stipulation, and
the Settlement shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to any state’s principles governing choice
of law.

 

12.                               Jurisdiction and Venue.  Each of the Parties
hereto submits to and accepts the exclusive jurisdiction of the Court for any
action, suit, or proceeding arising out of this MOU.

 

13.                               Jury Waiver.  EACH PARTY, TO THE FULLEST
EXTENT OF APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL
BY JURY FOR ANY ACTION, SUIT, OR PROCEEDING ARISING OUT OF THIS MOU.

 

14.                               No Admission of Liability.  The provisions
contained in this MOU shall not be deemed a presumption, concession, or
admission by any Defendant of any fault, liability, or wrongdoing as to any
facts or claims that have been or might be alleged or asserted in the

 

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Action, and shall not be interpreted, construed, deemed, invoked, offered, or
received in evidence or otherwise used by any person against any Defendant in
the Action or in any other action or proceeding, whether civil, criminal, or
administrative, for any purpose other than as provided for expressly herein. 
Nor shall the provisions contained in this MOU be deemed a presumption,
concession, or admission by Plaintiff concerning the merits, or lack thereof, of
any facts or claims alleged or asserted in the Action, or any other actions or
proceedings.

 

15.                               Binding on Successors.  This MOU shall be
binding upon and inure to the benefit of the Parties and their respective
agents, executors, heirs, legal representatives, successors, and assigns.

 

16.                               Modification.  This MOU may be modified or
amended only by a writing signed by all of the signatories hereto that refers
specifically to this MOU.

 

17.                               Execution by Counterparts.  This MOU may be
executed in any number of actual, telecopied, or electronically distributed
counterparts, each of which when so executed and delivered will be an original,
and all of which together will constitute one and the same instrument.  This MOU
is jointly drafted and is not to be construed against any of the Parties to the
MOU.

 

18.                               Miscellaneous.  This MOU constitutes the
entire agreement among the Parties to this MOU with respect to the subject
matter hereof, and supersedes all written or oral communications, agreements, or
understandings that may have existed prior to the execution of this MOU.

 

19.                               Third-Party Beneficiaries.  The Released
Parties who are not Parties hereto shall be third-party beneficiaries under this
MOU entitled to enforce this MOU in accordance with its terms.

 

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20.                               Notification to the Court.  Within five
(5) business days of execution of this MOU, Plaintiff’s counsel shall inform the
Court of the proposed Settlement.

 

IN WITNESS WHEREOF, the Parties have executed this MOU effective as of
November 8, 2016:

 

 

COOLEY LLP

 

 

 

 

 

/S/ Peter Adams

 

Peter Adams

 

4401 Eastgate Mall

 

San Diego, CA 92121

 

Tel: (858) 550-6000

 

Fax: (858) 550-6420

 

Email: padams@cooley.com

 

 

 

Attorneys for Defendants

 

 

 

 

 

PURCELL JULIE & LEFKOWITZ LLP

 

 

 

 

 

/S/ Douglas Julie

 

Steven J. Purcell

 

Douglas E. Julie

 

65 Broadway, Suite 828

 

New York, NY 10006

 

Tel: (212) 840-6300

 

Fax: (212) 725-0270

 

Email: spurcell@pjlfirm.com

 

 

 

Attorneys for Plaintiff

 

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Exhibit A to Memorandum of Understanding
November 8, 2016

 

PROPOSAL [   ]:

 

RATIFICATION OF THE PRIOR GRANT TO THE COMPANY`S CEO OF
 AN OPTION TO PURCHASE 850,000 SHARES OF COMMON STOCK

 

The Iteris, Inc. 2007 Omnibus Incentive Plan (the “Plan”) was adopted by our
Board of Directors on July 19, 2007, and our stockholders voted to approve the
Plan on September 21, 2007.  On October 17, 2014, at the Company’s 2014 Annual
Meeting, our stockholders voted to approve an amendment to the Plan, which
increased the number of shares reserved under the Plan by 1,500,000 (the “2014
Amendment”).  On September 24, 2015, at the Company’s 2015 Annual Meeting, our
stockholders voted to approve another amendment to the Plan, which increased the
number of shares reserved under the Plan by an additional 1,000,000 (the “2015
Amendment,” and together with the 2014 Amendment, the “Amendments”).  As of
July 22, 2016, there were 3,334,500 shares of common stock subject to
outstanding options under the Plan, 172,500 shares of common stock subject to
restricted stock unit awards under the Plan, and 834,771 shares of common stock
remaining available for future awards under the Plan.

 

Under Section 4(d) of the Plan, if the Compensation Committee of the Company’s
Board of Directors provides that this section applies to a particular equity
award, then no Plan participant may be granted stock options or stock
appreciation rights (“SARs”) in any fiscal year with respect to more than
500,000 shares of common stock (the “500,000 Share Limit”).  Thus, under the
terms of the Plan, the Compensation Committee has the authority and discretion
to award stock options or stock appreciation rights that exceed the 500,000
Share Limit.

 

On September 23, 2015, in connection with Mr. Bergera’s appointment to serve as
President and Chief Executive Officer of the Company, and pursuant to the Plan,
the Compensation Committee granted Mr. Bergera an option to purchase up to
1,350,000 shares of the Company’s common stock at an exercise price per share of
$2.38 (the “CEO Option”), the closing price of the common stock on the date of
the grant of the option (collectively, the “Option Grant”).  The CEO Option
vests annually in equal installments over four years (beginning on September 23,
2015) and will expire on September 22, 2025.  As of September 30, 2016, 337,500
shares of common stock subject to the CEO Option have vested.  The purchase
price for shares of common stock subject to the CEO Option must be paid in full
at the time the CEO Option is exercised.  This description of the material
features of the CEO Option is subject to, and is qualified entirely by, the full
text of the CEO Option, which is attached hereto as Exhibit A.

 

On September 15, 2016, a stockholder of the Company (the “Plaintiff”) filed a
class action and derivative action (captioned Ionni v. Bergera, et al., Case
No. 16-cv-00807-RGA) in the United States District Court for the District of
Delaware (the “Court”) challenging, among other things, the CEO Option (the
“Litigation”).  The complaint was filed against Joe Bergera, Richard Char, Kevin
C. Daly, Gregory A. Miner, Abbas Mohaddes, Gerard M. Mooney, Thomas L. Thomas,
and Mikel H. Williams (collectively, “Individual Defendants”).  The Company was
named as a Nominal Defendant (together with the Individual Defendants, the
“Defendants”).  The complaint alleges that the Individual Defendants breached
their fiduciary duties by causing the Company to issue purportedly false and
misleading proxy statements regarding the 500,000 Share Limit in connection with
the Amendments.(1)  Among other things, Plaintiff contends that the Proxy
Statements were materially false and misleading because they affirmatively
represented that, in any fiscal year, no person could receive stock options or
SARs under the Plan with respect to more than 500,000 shares, but failed to
disclose that the Compensation Committee had the discretion to approve an annual
grant to a Plan participant in excess of that amount.  Plaintiff further alleges
that, as a result, the Amendments were not valid.  Plaintiff seeks rescission of
any stock options granted pursuant to the Amendments, including the CEO Option. 
Mr. Bergera was the only individual to receive awards covering more than 500,000
shares of common stock in any fiscal year pursuant to the Amendments.

 

The Individual Defendants have denied, and continue to deny, that they breached
their fiduciary duties or engaged in any of the wrongful acts alleged in the
complaint.  Defendants maintain that the Proxy Statements fully disclosed all

 

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(1)  On September 8, 2014, Iteris filed a Schedule 14A Definitive Proxy
Statement with the SEC in connection with the 2014 Annual Meeting of
Stockholders; and on July 29, 2015, Iteris filed a Schedule 14A Definitive Proxy
Statement with the SEC in connection with the 2015 Annual Meeting of
Stockholders (collectively, the “Proxy Statements”).

 

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material information to the Company’s stockholders, that the Amendments were
properly approved by the Company’s stockholders, and that all stock awards
granted under the Plan, including the CEO Option, were valid.  Nonetheless, to
eliminate the burden, expense, and uncertainty of the Litigation, on November 8,
2016, Defendants entered into a Memorandum of Understanding (the “MOU”) with the
Plaintiff setting forth their agreement in principle to settle the Litigation,
subject to final approval by the Court.(2)  Under the terms of the MOU, the
Company has agreed to seek stockholder approval of the portion of the CEO Option
that exceeds the 500,000 Share Limit — i.e., the 850,000 shares above 500,000
(the “Excess Shares”).  The Company believes that stockholder approval of the
Option Grant for the Excess Shares is not required and that the entire CEO
Option, including the Excess Shares, was validly and properly granted by the
Compensation Committee under the terms of the Plan and the Company’s bylaws and
charter, and was in the best interest of the Company.  Nonetheless, in order to
resolve the Litigation, the Board of Directors has authorized the Company to
submit this proposal to the Company’s stockholders.

 

Stockholder Approval

 

The affirmative vote of a majority of the shares of common stock, present and
represented by proxy and entitled to vote at the Annual Meeting, will be
required for ratification and approval of the Option Grant for the Excess
Shares.  The Board of Directors believes that stockholder ratification and
approval of the Option Grant for the Excess Shares is the most efficient and
cost-effective way of resolving the litigation and honoring the terms of
Mr. Bergera’s employment agreement with the Company.

 

If the stockholders do not ratify and approve the Option Grant for the Excess
Shares by the affirmative vote of the majority of the shares of common stock,
present and represented by proxy and entitled to vote at the Annual Meeting,
then the Excess Shares will be not be issuable and the Compensation Committee
will explore measures to appropriately compensate Mr. Bergera in accordance with
the terms of his employment agreement with the Company.  The Board of Directors
believes that such alternative measures to appropriately compensate Mr. Bergera
could result in a compensation charge to the Company and less favorable
accounting and tax treatment for the Company.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the stockholders vote “FOR” the
ratification and approval of the Option Grant for the Excess Shares.

 

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(2)  The MOU provides, among other things, that as soon as practicable, the
parties will negotiate and execute an appropriate Stipulation of Settlement
setting forth the full terms of the settlement for presentation to the Court;
the Stipulation of Settlement is subject to final approval of the Court.

 

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