Hi-Shear Technology Corporation Provides Litigation Update

  
    
  
  
    
      Hi-Shear Technology Corporation (AMEX:HSR) today announced an update to 
      the company’s litigation against United Space 
      Alliance. As discussed in the company’s most 
      recent 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 and 
      USBI'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, 
      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 the court’s 
      letter.
    
    
      Hi-Shear Technology Corporation provides pyrotechnic, mechanical, and 
      electronic products to prime aerospace customers for use in aerospace 
      and defense markets where safety, performance and high reliability are 
      essential. It develops and produces advanced systems and products that 
      are primarily used worldwide in space satellites, launch vehicles, 
      national defense, and government programs.
    
    
      This release, as it relates to product announcements and other Company 
      matters, contains forward-looking statements, which are made pursuant to 
      the safe harbor provisions of the Private Securities Litigation Reform 
      Act of 1995. Investors are cautioned that all forward-looking statements 
      involve risks and uncertainties including, without limitation, risks 
      related to market acceptance of and demand for the Company’s 
      new products, dependence on the uncertainty of government budgetary 
      issues, primary government contracts, and intellectual property rights.
    
    
      For more information regarding this release or general information about 
      the company contact Ms. Linda A. Nespole, [phone].