UNITED STATES
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): AUGUST 5, 2008
HI-SHEAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 001-12810 22-2535743
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
24225 GARNIER STREET
TORRANCE, CALIFORNIA 90505-5355
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (310) 784-2100
ITEM 8.01 OTHER EVENTS
Litigation Update
As discussed most recently in our Form 10-Q for the quarter ended February 29,
2008, in November 2000, Hi-Shear filed suit against United Space Alliance, LLC,
a Delaware limited liability company ("Alliance"), and USBI Co., a Delaware
corporation ("USBI"), in the Circuit Court of the Eighteenth Judicial Circuit,
Brevard County, Florida. Hi-Shear sought to recover damages in excess of
$1,500,000, excluding interest, costs, and attorneys' fees, alleging Alliance
and USBI breached contracts for Hi-Shear to manufacture and deliver certain
hardware for use on the Space Shuttle. Hi-Shear also sought damages based on
claims alleging that Alliance and USBI fraudulently induced Hi-Shear to enter
into certain contracts to manufacture and deliver certain hardware for use on
the Space Shuttle. In addition, Hi-Shear sought damages for claims that
defendants misappropriated Hi-Shear's proprietary information and/or trade
secrets in certain technical data and information. Hi-Shear also alleged a claim
for a declaratory judgment.
Alliance subsequently filed a counterclaim seeking damages of over $450,000,
excluding interest, costs, and attorneys' fees, alleging Hi-Shear breached its
contracts to manufacture and deliver certain hardware for use on the Space
Shuttle. Alliance also alleged a claim for conversion and an accounting relating
to certain items of alleged government furnished equipment, and a claim for a
declaratory judgment. As part of its defense in the litigation, Alliance claimed
that it was coerced through duress to enter into a contract with Hi-Shear where
Hi-Shear was the qualified successful lowest bidder. In addition, Alliance
demanded that Hi-Shear ship uncertified flight hardware to it for use on the
United States Space Shuttle, ahead of its normal certification schedule. USBI
did not file a counterclaim against the Company.
In July 2004, Hi-Shear filed a separate but related suit against Pacific
Scientific Energetic Materials Company, a Delaware corporation, in the Circuit
Court of the Eighteenth Judicial Circuit, Brevard County, Florida. Hi-Shear
sought to recover damages, alleging that defendant misappropriated Hi-Shear's
proprietary information and/or trade secrets in certain technical data and
information, conspired to misappropriate trade secrets, and interfered with
Hi-Shear's advantageous business relationships. After defendant filed, and the
court ruled on, a motion to dismiss, and Hi-Shear filed an amended complaint
against Pacific Scientific, the court entered an order staying all further
proceedings in the case until the appeals from the suit between Hi-Shear and
Alliance and USBI are resolved, and the court enters a subsequent order lifting
the stay.
Prior to the trial between Hi-Shear, Alliance, and USBI, the court made legal
rulings that the Company did not have trade secrets in certain technical data
and information, which the Company alleged had been misappropriated by Alliance
and USBI. As a result, the court granted in part Alliance's and USBI's motions
for summary judgment on that issue. Prior to trial, the court also made legal
rulings that USBI did not fraudulently induce Hi-Shear to enter into a contract
to manufacture and deliver certain flight hardware for use on the Space Shuttle.
As a result, the court granted Alliance's and USBI's motions for summary
judgment on that issue.
Trial before a jury of Hi-Shear's remaining claims against Alliance and USBI,
and Alliance's counterclaim against Hi-Shear, commenced on July 5, 2005 in
Titusville, Florida. Shortly after the trial began, the court made additional
legal rulings, which resulted in its granting the remainder of Alliance's and
USBI's motions for summary judgment on the trade secrets issues. As a
consequence of those rulings and based on their circumstances, Hi-Shear
dismissed its remaining claims against USBI. As a result, USBI was no longer a
participant in the trial.
The jury trial continued through September 2, 2005. Some of Hi-Shear's claims
were disposed of by the court based on legal rulings made during the course of
trial. Of the remaining claims that the jury was asked to decide, the jury
rendered a verdict in favor of Hi-Shear on one of its breach of contract claims,
and awarded the Company damages of $57,781, exclusive of interest, costs, and
attorneys' fees. The jury found in favor of Alliance on Hi-Shear's remaining
breach of contract claims and thus awarded Hi-Shear no damages on those claims.
The jury also found in favor of Alliance on its counterclaim for breach of
contracts but awarded it no damages. In addition, the jury determined that
Hi-Shear converted certain government furnished equipment pursuant to Alliance's
conversion counterclaim.
In August 2005, the court entered final judgment on Hi-Shear's claims against
USBI. After hearing and denying post-trial motions by both Hi-Shear and
Alliance, in May 2006 the court entered final judgment on Hi-Shear's and
Alliance's respective claims against each other.
In September 2005, Hi-Shear appealed the final judgment entered on its claims
against USBI to Florida's Fifth District Court of Appeal. Alliance participated
in that appeal as an appellee based on its having joined in the trade secrets
and fraudulent inducement summary judgment motions at the trial level. In
February 2007, after hearing oral argument, the court of appeal affirmed the
trial court's rulings and final judgment in favor of USBI. The appellate court
denied motions by Hi-Shear and Alliance to recover attorneys' fees incurred on
appeal.
In June 2006, Hi-Shear appealed the final judgment entered on its claims against
Alliance, and Alliance's counterclaims against Hi-Shear, to Florida's Fifth
District Court of Appeal challenging the legal basis of the lower court's final
judgment including the amounts of the recovery of Hi-Shear's damages on
contracts for manufactured components and other claims at trial. The appeal
encompasses issues evident throughout the court proceedings, including the legal
basis of the trial court's judgments and questionable adverse rulings by the
court during the entire course of the trial. Alliance has filed its
cross-appeal, parties' briefs on appeal have been filed, and the oral arguments
to the appellate court were completed on June 25, 2008. The Florida Fifth
District Court of Appeal will issue its decision regarding this appeal in due
course. The Company is not able to estimate when the decision will be issued.
In the final judgments, the trial court retained jurisdiction to consider
motions by the parties to recover attorneys' fees and litigation costs. In
December 2006, the trial court entered an order denying Hi-Shear's motion for
entitlement to recover its attorneys' fees and costs from Alliance, even though
Hi-Shear was the only party to have been awarded damages by the jury. In that
same order, the court determined that instead, Alliance had prevailed on its
claims for breach of three of four contracts and thus was entitled to recover
from Hi-Shear its reasonable attorneys' fees incurred relating to count I of its
counterclaim against Hi-Shear for breach of contracts. The court also ordered
that both Alliance and USBI were entitled to recover their respective litigation
costs from Hi-Shear. Alliance has claimed the amount of reasonable attorneys'
fees it should recover from Hi-Shear is approximately $2,900,000, and the amount
of litigation costs it should recover from Hi-Shear is approximately $453,000.
USBI has claimed the amount of litigation costs it should recover from Hi-Shear
is approximately $48,000. Hi-Shear has opposed these claims, believing that the
amounts sought by Alliance and USBI are excessive.
On March 13-14, 2008, the trial court held an evidentiary hearing on the amount
of reasonable attorneys' fees to be awarded to Alliance. At the hearing,
Hi-Shear offered evidence and expert testimony to establish that alliance's
request for reasonable attorneys' fees and costs are excessive and that they
should not have exceeded approximately $400,000. The trial court also issued an
order requiring memoranda of law by the parties on the amount of costs to be
awarded to Alliance and USBI.
On July 28, 2008, the trial court sent a letter to Alliance's attorneys asking
them to prepare a form of order regarding attorneys' fees. Hi-Shear received a
copy of the letter on July 31, 2008. The letter does not specify the final
amount of attorneys' fees to be awarded, and it indicates that an additional
hearing will be required on specific issues. However, the letter also indicates
that the trial court will make favorable rulings for Alliance on several issues,
and it appears that the trial court may award to Alliance the preponderance of
the attorneys' fees it seeks. The trial court has not yet issued a ruling on,
and the court's letter does not address the amount of taxable costs that
Alliance and USBI are entitled to recover.
The final outcome of Hi-Shear's pending appeal and Alliance's pending
cross-appeal may have an effect on the award of attorney fees and costs to
Alliance. Although Hi-Shear believes that it will prevail on its appeal and that
the trial court's order that it pay Alliance's attorneys' fees and costs will be
reversed. Hi-Shear believes that it is appropriate under generally accepted
accounting principles to revise upward its accrual for liabilities associated
with the litigation in the year ended May 31, 2008. Although Hi-Shear is unable
to determine the precise amount of attorney fees that will be awarded at this
time, and it believes that it is appropriate under generally accepted accounting
principles to revise its accrual for its year ended May 31, 2008, based on an
estimate of the fee descriptions contained in the court's letter.
SIGNATURE
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 hereunto duly authorized.
HI-SHEAR TECHNOLOGY CORP.
Dated: August 5, 2008 By: /s/ George W. Trahan
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George W. Trahan, President,
Chief Executive Officer and
Co-Chairman
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HI Shear (AMEX:HSR)
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