Intrusion Inc 8-K, filed Oct 2, 2023
Intrusion Inc (INTZ)
About this 8-K
Intrusion Inc filed this 8-K on October 2, 2023, reporting on events of September 26, 2023.
Items reported
- Item 1.01: Entered into a material agreement
- Item 3.01: Delisting notice or listing transfer
- Item 5.03: Charter or bylaw amendment, or fiscal year change
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
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Item 1.01. Entry into a Material Definitive Agreement.
As previously disclosed, on June 3, 2022, a stockholder derivative complaint (Prawitt v. Blount, et al., Case No. 1:22-cv-00735-MN (D. Del.) (the “Action”)) was filed in U.S. District Court, District of Delaware by plaintiff Nathan Prawitt on behalf of Intrusion Inc. (the “Company”) against certain of the Company’s current and former officers and directors. The plaintiff alleged that defendants through various actions breached their fiduciary duties, wasted corporate assets, and unjustly enriched defendants by (a) incurring costs and expenses in connection with the then-ongoing investigation by the Securities and Exchange Commission (the “SEC”) (see Item 8.01 of this Current Report on Form 8-K), (b) incurring costs and expenses to defend us with respect to the previously disclosed consolidated class action, (c) settling class-wide liability with respect to the consolidated class action, as well as ancillary claims regarding sales of the Company’s common stock by certain of the defendants. On September 28, 2023, the Company agreed to the terms of a settlement contained in that certain Stipulation of Compromise and Settlement (“Settlement Agreement”) of the Action. The Settlement Agreement is subject to Court approval and provides in part for (i) an amendment to the Company’s Bylaws, committee Charters, and other applicable corporate policies to implement certain measures set forth more fully therein, to remain in effect for no less than three years; (ii) attorneys’ fees and expenses to plaintiff’s counsel of $250,000; and (iii) the dismissal of all claims against the defendants, including the Company, in connection with the Action. The $250,000 settlement payment will be paid by the Company’s insurance provider under its insurance policy since the Company’s $0.5 million retention was previously exhausted (the “Settlement Payment”).
The Company also agreed to adopt amended and restated bylaws providing that when the Company’s Chief Executive Officer and Chairman of the Board of Directors of the Company are the same individual, the Company will designate a lead independent director. See Item 5.03 of this Current Report on Form 8-K.
Under the Settlement Agreement, the plaintiff agreed to release any and all claims that he had, has, or may have against the Company arising out of any event occurring on or before the effective date of the Settlement Agreement, including claims related to the Action.
In exchange for plaintiff’s promises and other consideration under the Settlement Agreement, the Company agreed to pay the Settlement Payment. The Company also agreed to release plaintiff from any and all claims that it had, has, or may have against plaintiff arising out of any event occurring on or before the effective date of the Settlement Agreement.
The description of the Settlement Agreement contained herein does not purport to be complete and is qualified in its entirety by reference to the full text of the Settlement Agreement, which is filed herewith as Exhibit 10.1, and is incorporated herein by reference.
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
On September 26, 2023, the Company received a written notice from The Nasdaq Stock Market LLC (“NASDAQ”) notifying the Company that the closing bid price of the Company’s common shares (the “Common Shares”) over the 30 consecutive trading days from August 14, 2023, through September 25, 2023, had fallen below $1.00 per share, which is the minimum closing bid price required to maintain listing on the NASDAQ Capital Market under Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).
In accordance with NASDAQ Listing Rule 5810(c)(3)(A), the Company has 180 calendar days to regain compliance with the Minimum Bid Requirement (the “Grace Period”), or until March 25, 2024, subject to a potential 180 calendar day extension, as described below. To regain compliance, the closing bid price of the Company’s Common Shares must be at least $1.00 per share for a minimum of 10 consecutive business days within the Grace Period.
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If the Company does not achieve compliance with the Minimum Bid Requirement by March 25, 2024, the end of the Grace Period, the Company may be eligible for an additional 180 calendar day period to regain compliance. To qualify, the Company would be required, among other things, to meet the continued listing requirement for the market value of its publicly held shares and all other NASDAQ initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Requirement, and would need to provide written notice to NASDAQ of its intention and plan to cure the deficiency during the second compliance period by effectuating a reverse stock split, if necessary. However, if it appears to NASDAQ staff that the Company will not be able to cure the deficiency, or if the Company does not meet the other listing standards, NASDAQ could provide notice that the Company’s Common Shares will be subject to delisting. In the event the Company receives notice that its Common Shares are being delisted, the Company would be entitled to appeal the determination to a NASDAQ Listing Qualifications Panel and request a hearing.
As previously reported, on April 28, 2023, the Company received written notice from NASDAQ notifying the Company that, for the then-last 30 consecutive business days, the Company’s Market Value of Listed Securities ("MVLS") was below the minimum of $35 million required for continued listing on the NASDAQ Capital Market pursuant to Listing Rule 5550(b)(2) (the “Market Value Standard”). The notice provided that, in accordance with Listing Rule 5810(c)(3)(C), the Company had a period of 180 calendar days from the date of the notice, or until October 25, 2023, to regain compliance pursuant to one of the three standards as set forth under Rule 5550(b)(1), (b)(2), or (b)(3).
The Company intends to actively monitor the closing bid price of its Common Shares and will evaluate available options to regain compliance with the Minimum Bid Requirement. The notice has no immediate effect on the listing or trading of the Company’s Common Shares, which will continue to be listed and traded on the NASDAQ Capital Market, subject to the Company’s compliance with the other NASDAQ listing requirements. The Company also continues to monitor its MLVS, and may, if appropriate, evaluate available options to resolve the deficiency under the Market Value Standard and regain compliance with the Market Value Standard. The Company may also try to comply with another NASDAQ listing criteria, such as the one under NASDAQ Listing Rule 5550(b)(1) (Equity Standard). However, there can be no assurance that the Company will be able to regain or maintain compliance with either NASDAQ listing criteria.
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
On September 27, 2023, in connection with the Settlement Agreement, the Board of Directors adopted amended and restated bylaws (“A&R Bylaws”). The A&R Bylaws provide that in unusual circumstances as determined by the Board, the Chief Executive Officer and Chairman of the Board may be the same individual; however, under such circumstances, the Board will elect a lead independent director to serve concurrently with the Chief Executive Officer and Chairman. The description of the A&R Bylaws contained herein does not purport to be complete and is qualified in its entirety by reference to the full text of the A&R Bylaws, which A&R Bylaws are filed herewith as Exhibit 3.1, and incorporated herein by reference.
Item 8.01. Other Events.
As previously disclosed, on August 8, 2023, the Company received a notification from the SEC, Division of Enforcement, that it was conducting an investigation captioned In the Matter of Intrusion Inc. and requesting the Company produce certain documents and information. On November 9, 2021, the SEC served a subpoena to the Company in connection with this investigation which formally requested substantially similar information as in the prior request.
On September 26, 2023, the Company consented to the entry of final judgment, in the action styled Securities and Exchange Commission v. Intrusion Inc., No. 4:23-cv-00859 (E.D. Tex. filed September 26, 2023). The Complaint alleged that false and misleading statements were made in 2020 and 2021 by the Company, primarily through the Company’s former CEO, regarding the Company's purported success in marketing a cybersecurity product, the terms of multiple contracts, and the background and experience of its former CEO. The Complaint charged the Company with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and Rule 10b-5 thereunder; Section 17(a) of the Securities Act of 1933, as amended (the “Securities Act”); and the current reporting and disclosure controls and procedures provisions of Section 13(a) of the Exchange Act and Rules 13a-11 and 13a-15(a) thereunder.
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Without admitting or denying the SEC's allegations, the Company has agreed to settle the matter by consenting to the entry of a final judgment that addresses all charges and relief sought by the SEC (the “Consent and Proposed Final Judgment”). The Consent and Proposed Judgment requires the Company to adhere to filing, reporting, and governance standards required by controlling federal securities laws and regulations. Specifically, under the Consent and Proposed Final Judgment, the Company is permanently restrained and enjoined from violating Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder; Section 17(a) of the Securities Act in the offer or sale of any security by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails; Section 13(a) of the Exchange Act and Rules 13a-11 and 13a-15(a) thereunder by failing to file current reports in conformity with the instructions on Form 8-K, by failing to file such reports in conformity with the SEC’s integrated reporting and disclosure regulations, Regulations S-K and S-X, or by failing to maintain disclosure controls and procedures.
The Consent and Proposed Final Judgment contains no monetary penalty against the Company. The settlement is subject to court approval.
Item 9.01. Financial Statements and Exhibits.
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Exhibit No. |
Description | |
| 3.1 | Amended and Restated Bylaws of the Company. | |
| 10.1 | Stipulation of Compromise and Settlement, dated September 28, 2023. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that do not represent historical facts and may be based on underlying assumptions. The Company uses words and phrases such as “an agreement,” “subject to,” “would,” “provides” “requires” and similar expressions to identify forward-looking statements in this report. Such forward-looking statements are based on information available to the Company as of the date of this report and involve a number of risks and uncertainties, some beyond the Company’s control, that could cause actual results to differ materially from those anticipated by these forward-looking statements, including risks and uncertainties such as: (i) the ability to overcome any objections or appeals regarding the settlement and (ii) other risks described in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, and future filings and reports by the Company. These forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date, and the Company is under no obligation to, and expressly disclaims any responsibility to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.
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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.
| INTRUSION INC. | ||
| Dated: October 2, 2023 | By: | /s/ Kimberly Pinson |
| Kimberly Pinson | ||
| Chief Financial Officer | ||
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Exhibit 3.1
AMENDED AND RESTATED CORPORATE BYLAWS
OF
INTRUSION INC.
(A DELAWARE CORPORATION)
(EFFECTIVE AS OF SEPTEMBER 27, 2023)
ARTICLE 1
NAME AND OFFICES
1.1 NAME. The name of the Corporation is Intrusion Inc., hereinafter referred to as the "Corporation."
1.2 REGISTERED OFFICE AND AGENT. The Corporation shall establish, designate and continuously maintain a registered office and agent in the State of Delaware, subject to the following provisions:
(a) REGISTERED OFFICE. The Corporation shall establish and continuously maintain in the State of Delaware a registered office which may be, but need not be, the same as its place of business.
a(b) REGISTERED AGENT. The Corporation shall designate and continuously maintain in the State of Delaware a registered agent, which agent may be either an individual resident of the State of Delaware whose business office is identical with such registered office, or a domestic corporation or a foreign corporation authorized to transact business in the State of Delaware, having a business office identical with such registered office.
(c) CHANGE OF REGISTERED OFFICE OR AGENT. The Corporation may change its registered office or change its registered agent, or both, upon the filing in the Office of the Secretary of State of Delaware of a statement setting forth the facts required by law, and executed for the Corporation by its President, a Vice President or other duly authorized officer.
1.3 OTHER OFFICES. The Corporation may also have offices at such other places within and without the State of Delaware as the Board of Directors may, from time to time, determine the business of the Corporation may require.
ARTICLE 2
STOCKHOLDERS
2.1 PLACE OF MEETINGS. Each meeting of the stockholders of the Corporation is to be held at the principal offices of the Corporation or at such other place, either within or without the State of Delaware, as may be specified in the notice of the meeting or in a duly executed waiver of notice thereto
2.2 ANNUAL MEETING. The annual meeting of the stockholders for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held at such date, time and place as may be designated each by resolution of the Board of Directors, provided, however, that the failure to hold the annual meeting within the designated period of time or on the designated date shall not work a forfeiture or dissolution of the Corporation.
2.3 SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. The notice of a special meeting shall state the purpose or purposes of the proposed meeting and the business to be transacted at any such special meeting of stockholders and shall be limited to the purposes stated in the notice therefor.
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2.4 NOTICE. Written or printed notice of the meeting stating the place, day and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, or the Secretary, to each stockholder of record entitled to vote at such meeting as determined in accordance with the provisions of Section 2.10 hereof. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail, with postage thereon prepaid, addressed to the stockholder entitled thereto at his address as it appears on the stock transfer books of the Corporation.
2.5 VOTING LIST. The officer or agent having charge and custody of the stock transfer books of the Corporation, shall prepare, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares having voting privileges registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of not less than ten (10) days prior to such meeting either at the principal office of the Corporation or at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the entire time of the meeting. The original stock ledger or transfer book, or a duplicate thereof, shall be prima facie evidence as to identity of the stockholders entitled to examine such list or stock ledger or transfer book and to vote at any such meeting of the stockholders. The failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting.
2.6 QUORUM. The holders of a majority of the shares of the capital stock issued and outstanding entitled to vote thereat, represented in person or by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation or by these Bylaws. If, however, such quorum shall not be present or represented at any such meeting of the stockholders, the stockholders entitled to vote thereat, present in person, or represented by proxy, shall have the power to adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such reconvened meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the reconvened meeting; a notice of said meeting shall be given to each stockholder entitled to vote at said meeting.
2.7 REQUISITE VOTE. With respect to any action to be taken by the stockholders on any matter other than the election of directors, the affirmative vote of the holders of a majority of the outstanding shares of capital stock entitled to vote on that matter represented in person or by proxy at a meeting of the stockholders at which a quorum is present shall be the act of the stockholders.
2.8 WITHDRAWAL OF QUORUM. If a quorum is present at the time of commencement of any meeting, the stockholders present at such duly convened meeting may continue to transact any business which may properly come before said meeting until adjournment thereof, notwithstanding the withdrawal from such meeting of sufficient holders of the shares of capital stock entitled to vote thereat to leave less than a quorum remaining.
2.9 VOTING AT MEETING. Voting at meetings of stockholders shall be conducted and exercised subject to the following procedures and regulations:
(a) VOTING POWER. In the exercise of voting power with respect to each matter properly submitted to a vote at any meeting of stockholders, each stockholder of the capital stock of the Corporation having voting power shall be entitled to one (1) vote for each such share held in his name on the books of the Corporation, except to the extent otherwise specified by the Certificate of Incorporation or Certificate of Designations pertaining to a series of preferred stock.
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(b) EXERCISE OF VOTING POWER. Each stockholder entitled to Vote at a meeting or to express consent or dissent to corporate action in writing without a meeting may vote either in person or authorize another person or persons to act for him by proxy duly appointed by instrument in writing subscribed by such stockholder or by his duly authorized attorney-in-fact; provided, however, no such appointment of proxy shall be valid, voted or acted upon after the expiration of three (3) years from the date of execution of such written instrument of appointment, unless otherwise stated therein. A proxy shall be revocable unless expressly designated therein as irrevocable and coupled with an interest. Proxies coupled with an interest include the appointment as proxy of: (a) a pledgee; (b) a person who purchased or agreed to purchase or owns or holds an option to purchase the shares voted; (c) a creditor of the Corporation who extended its credit under terms requiring the appointment; (d) an employee of the Corporation whose employment contract requires the appointment; or (e) a party to a voting agreement created under Section 218 of the General Corporation Law of Delaware, as amended. Each proxy shall be filed with the Secretary of the Corporation prior to or at the time of the meeting. Any vote may be taken by voice vote or by show of hands unless someone entitled to vote at the meeting objects, in which case written ballots shall be used.
(c) ELECTION OF DIRECTORS. In all elections of Directors cumulative voting shall be prohibited.
2.10 RECORD DATE. As more specifically provided in Article 7, Section 7.7 hereof, the Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be less than ten (10) nor more than sixty (60) days prior to such meeting. In the absence of any action by the Board of Directors fixing the record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice of the meeting is given, or, if notice is waived, at the close of business on the day before the meeting is held.
2.11 NO ACTION WITHOUT MEETINGS. Any action permitted or required to be taken at a meeting of the stockholders of the Corporation shall be taken only at a duly called and convened annual or special meeting of the stockholders of the Corporation at which a quorum is present, and may not be taken without a meeting, without prior notice, and without a vote, by a consent or consents in writing setting forth the action so taken signed by the holder or holders of a majority of the outstanding stock entitled to vote thereon.
2.12 PREEMPTIVE RIGHTS. No holder of shares of capital stock of the Corporation shall, as such holder, have any right to purchase or subscribe for any capital stock of any class which the Corporation may issue or sell, whether or not exchangeable for any capital stock of the Corporation of any class or classes, whether issued out of unissued shares authorized by the Certificate of Incorporation, as amended, or out of shares of capital stock of the Corporation acquired by it after the issue thereof; nor shall any holder of shares of capital stock of the Corporation, as such holder, have any right to purchase, acquire or subscribe for any securities which the Corporation may issue or sell whether or not convertible into or exchangeable for shares of capital stock of the Corporation of any class or classes, and whether or not any such securities have attached or appurtenant thereto warrants, options or other instruments which entitle holders thereof to purchase, acquire or subscribe for shares of capital stock of any class or classes.
ARTICLE 3
DIRECTORS
3.1 MANAGEMENT POWERS. The powers of the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statue or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
3.2 NUMBER AND QUALIFICATION. The Board of Directors shall consist of not less than three (3) members nor more than eleven (11) members; provided, however, the initial Board of Directors shall consist of five (5) members. Directors need not be residents of the State of Delaware nor stockholders of the Corporation. Each Director shall qualify as a Director following election as such by agreeing to act or acting in such capacity. The number of Directors shall be fixed, and may be increased or decreased, from time to time by resolution of the Board of Directors without the necessity of a written amendment to the Bylaws of the Corporation; provided, however, no decrease shall have the effect of shortening the term of any incumbent Director.
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3.3 ELECTION AND TERM. Members of the Board of Directors shall hold office until the annual meeting of the stockholders of the Corporation and until their successors shall have been elected and qualified. At the annual meeting of stockholders, the stockholders entitled to vote in an election of Directors shall elect Directors to hold office until the next succeeding annual meeting of the stockholders. Each Director shall hold office for the term for which he is elected, and until his successor shall be elected and qualified or until his death, resignation or removal, if earlier.
3.4 VOTING ON DIRECTORS. Directors shall be elected by the vote of the holders of a plurality of the shares entitled to vote in the election of Directors and represented in person or by proxy at a meeting of stockholders at which a quorum is present. Cumulative voting in the election of Directors is expressly prohibited.
3.5 VACANCIES AND NEW DIRECTORSHIPS. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors elected by all the stockholders having the right to vote as a single class may be filled by the affirmative vote of a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, or by the requisite vote of the stockholders at an annual meeting of the stockholders or at a special meeting of the stockholders called for that purpose, and the Directors so elected shall hold office until their successors are elected and qualified. If the holders of any class or classes of stock or series of stock of the Corporation are entitled to elect one or more Directors by the Certificate of Incorporation or Certificate of Designations applicable to such class or series, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the Directors elected by such class or classes or series thereof then in office, or by a sole remaining Director so elected, and the Directors so elected shall hold office until the next election of the class for which such Directors shall have been chosen, and until their successors shall be elected and qualified. For purposes of these Bylaws, a "vacancy" shall be defined as an unfilled directorship arising by virtue of the death, resignation or removal of a Director theretofore duly elected to service in such capacity in accordance with the relevant provisions of these Bylaws.
3.6 REMOVAL. Except as hereinafter stated, any Director may be removed either for or without cause at any duly convened special or annual meeting of stockholders, by the affirmative vote of a majority in number of shares of the stockholders present in person or by proxy at any meeting and entitled to vote for the election of such Director, provided notice of intention to act upon such matter shall have been given in the notice calling such meeting. Notwithstanding the preceding, if the Directors of the Corporation are ever divided into two or three classes, any Director may be removed only for cause by the affirmative vote of a majority in number of shares of the stockholders present in person or by proxy at any meeting and entitled to vote for the election of such Director, provided notice of intention to act upon such matter shall have been given in the notice calling such meeting.
3.7 MEETINGS. The meetings of the Board of Directors shall be held and conducted subject to the following regulations:
(a) PLACE. Meetings of the Board of Directors of the Corporation, annual, regular or special, are to be held at the principal office or place of business of the Corporation, or such other places, either within or without the State of Delaware, as may be specified in the respective notices, or waivers of notices, thereof.
(b) ANNUAL MEETING. The Board of Directors shall meet each year immediately after the annual meeting of the stockholders, at the place where such meeting of the stockholders has been held (either within or without the State of Delaware), for the purpose of organization, election of officers, and consideration of any other business that may properly be brought before the meeting. No notice of any kind to either old or new members of the Board of Directors for such annual meeting shall be required.
(c) REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined and designated by the Board.
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(d) SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President of the Corporation on notice of two (2) days to each Director either personally or by mail or by telegram, telex or facsimile transmission and delivery. Special meetings of the Board of Directors shall be called by the Chairman of the Board or the President or Secretary in like manner and on like notice on the written request of two (2) Directors.
(e) NOTICE AND WAIVER OF NOTICE. Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, except where a Director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
(f) QUORUM. At all meetings of the Board of Directors, a majority of the number of Directors shall constitute a quorum for the transaction of business, unless a greater number is required by law or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of Directors, the Directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
(g) REQUISITE VOTE. In the exercise of voting power with respect to each matter properly submitted to a vote at any meeting of the Board of Directors, each Director present at such meeting shall have one (1) vote. The act of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.
3.8 ACTION WITHOUT MEETINGS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted by law to be taken at any meeting of the Board of Directors, or any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed in the minutes or proceedings of the Board of Directors or committee.
3.9 COMMITTEES. Committees designated and appointed by the Board of Directors shall function subject to and in accordance with the following regulations and procedures:
(a) DESIGNATION AND APPOINTMENT. The Board of Directors may, by resolution adopted by a majority of the entire Board, designate and appoint one or more committees under such name or names and for such purpose or function as may be deemed appropriate.
(b) MEMBERS; ALTERNATE MEMBERS; TERMS. Each committee thus designated and appointed shall consist of one or more of the Directors of the Corporation, one of whom, in the case of the Executive Committee, shall be the Chief Executive Officer of the Company. The Board of Directors may designate one or more of its members as alternate members of any committee, who may, subject to any limitations imposed by the entire Board, replace absent or disqualified members at any meeting of that committee. The members or alternate members of any such committee shall serve at the pleasure of and subject to the discretion of the Board of Directors.
(c) AUTHORITY. Each committee, to the extent provided in the resolutions of the Board creating same, shall have and may exercise such of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation as the Board of Directors may direct and delegate, except, however, those matters which are required by statute to be reserved unto or acted upon by the entire Board of Directors.
(d) RECORDS. Each such committee shall keep and maintain regular records or minutes of its meetings and report the same to the Board of Directors when required.
(e) CHANGE IN NUMBER. The number of members or alternate members of any committee appointed by the Board of Directors, as herein provided, may be increased or decreased (but not below two) from time to time by appropriate resolution adopted by a majority of the entire Board of Directors.
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(f) VACANCIES. Vacancies in the membership of any committee designated and appointed hereunder shall be filled by the Board of Directors, at a regular or special meeting of the Board of Directors, in a manner consistent with the provisions of this Section 3.9.
(g) REMOVAL. Any member or alternate member of any committee appointed hereunder may be removed by the Board of Directors by the affirmative vote of a majority of the entire Board, whenever in its judgment the best interests of the Corporation will be served thereby.
(h) MEETINGS. The time, place and notice (if any) of committee meetings shall be determined by the members of such committee.
(i) QUORUM; REQUISITE VOTE. At meetings of any committee appointed hereunder, a majority of the number of members designated by the Board of Directors shall constitute a quorum for the transactions of business. The act of a majority of the members and alternate members of the committee present at any meeting at which a quorum is present shall be the act of such committee, except as otherwise specifically provided by statute or by the Certificate of Incorporation or by these Bylaws. If a quorum is not present at a meeting of such committee, the members of such committee present may adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum is present.
(j) COMPENSATION. Appropriate compensation for members and alternate members of any committee appointed pursuant to the authority hereof may be authorized by the action of a majority of the entire Board of Directors pursuant to the provisions of Section 3.10 hereof.
(k) ACTION WITHOUT MEETINGS. Any action required or permitted to be taken at a meeting of any committee may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all members of such committee. Such consent shall have the same force and effect as a unanimous vote at a meeting. The signed consent, or a signed copy, shall become a part of the record of such committee.
(l) RESPONSIBILITY. Notwithstanding any provision to the contrary herein, the designation and appointment of a committee and the delegation of authority to it shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law.
3.10 COMPENSATION. By appropriate resolution of the Board of Directors, the Directors may be reimbursed their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum (as determined from time to time by the vote of a majority of the Directors then in office) for attendance at each meeting of the Board of Directors or a stated salary as Director, or both. No such payment shall preclude any Director from serving the Corporation in another capacity and receiving compensation therefor. Members of special or standing committees may, by appropriate resolution of the Board of Directors, be allowed similar reimbursement of expenses and compensation for attending committee meetings.
3.11 MAINTENANCE OF RECORDS. The Directors may keep the books and records of the Corporation, except such as required by law to be kept within the State, outside the State of Delaware or at such place or places as they may, from time to time, determine.
3.12 INTERESTED DIRECTORS AND OFFICERS. No contract or other transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any firm which one or more of its Directors or officers are members or employees, or in which they are interested, or between the Corporation and any corporation or association of which one or more of its Directors or officers are stockholders, members, directors, officers, or employees, or in which they are interested, shall be void or voidable solely for this reason, or solely because of the presence of such Director or Directors or officer or officers at the meeting of the Board of Directors of the Corporation, which acts upon, or in reference to, such contract, or transaction, if
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(a) the material facts of such relationship or interest shall be disclosed or known to the Board of Directors and the Board of Directors shall, nevertheless in good faith, authorize, approve and ratify such contract or transaction by a vote of a majority of the Directors present, such interested Director or Directors to be counted in determining whether a quorum is present, but not to be counted in calculating the majority of such quorum necessary to carry such vote; (b) the material facts of such relationship or interest as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by the vote of the stockholders; or (c) the contract or transaction is fair to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. The provisions of this Section shall not be construed to invalidate any contract or other transaction which would otherwise be valid under the common and statutory law applicable thereto.
ARTICLE 4
NOTICES
4.1 METHOD OF NOTICE. Whenever under the provisions of the General Corporation Law of Delaware or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any Director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing and delivered personally, through the United States mail, by a recognized delivery service (such as Federal Express) or by means of telegram, telex or facsimile transmission, addressed to such Director or stockholder, at his address or telex or facsimile transmission number, as the case may be, as it appears on the records of the Corporation, with postage and fees thereon prepaid. Such notice shall be deemed to be given at the time when the same shall be deposited in the United States Mail or with an express delivery service or when transmitted by telegram, telex or facsimile transmission or personally delivered, as the case may be.
4.2 WAIVER. Whenever any notice whatever is required to be given under the provisions of the General Corporation Law of Delaware or under the provisions of the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance by such person or persons, whether in person or by proxy, at any meeting requiring notice shall constitute a waiver of notice of such meeting, except where such person attends the meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
4.3 EXCEPTION TO REQUIREMENT OF NOTICE. Any notice required to be given to any stockholder under any provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these Bylaws need not be given to the stockholder if: (1) notice of two consecutive annual meetings and all notices of meetings held during the period between those annual meetings, if any, or (2) all (but in no event less than two) payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period have been mailed to that person, addressed at his address as shown on the records of the Corporation, and have been returned undeliverable. Any action or meeting taken or held without notice to such person shall have the same force and effect as if the notice had been duly given and, if the action taken by the Corporation is reflected in any certificate filed with the Secretary of State, that certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this Section. If such a person delivers to the Corporation, a written notice setting forth his then current address, the requirement that notice be given to that person shall be reinstated.
ARTICLE 5
OFFICERS AND AGENTS
5.1 DESIGNATION. The officers of the Corporation shall be chosen by the Board of Directors and shall consist of the offices of:
(a) President and Secretary; and
(b) Such other offices and officers (including a Chairman of the Board, Vice Chairman, Chief Executive Officer, Chief Operating Officer, one or more additional Vice Presidents and a Treasurer) and assistant officers and agents as the Board of Directors shall deem necessary.
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5.2 ELECTION OF OFFICERS. Each officer designated in Section 5.1(a) hereof shall be elected by the Board of Directors on the expiration of the term of office of such officer, as herein provided, or whenever a vacancy exists in such office. Each officer or agent designated in Section 5.1(b) above may be elected by the Board of Directors at any meeting.
5.3 QUALIFICATIONS. No officer or agent need be a stockholder of the Corporation or a resident of Delaware. No officer or agent is required to be a Director, except the Chairman of the Board. Any two or more offices may be held by the same person. In unusual circumstances as determined by the Board, the Chief Executive Officer and Chairman of the Board may be the same individual; however, under such circumstances, the Board shall elect a lead independent director to serve concurrently with the CEO and Chairman.
5.4 TERM OF OFFICE. Unless otherwise specified by the Board of Directors at the time of election or appointment, or by the express provisions of an employment contract approved by the Board, the term of office of each officer and each agent shall expire on the date of the first meeting of the Board of Directors next following the annual meeting of stockholders each year. Each such officer or agent, unless elected or appointed to an additional term, shall serve until the expiration of the term of his office or, if earlier, his death, resignation or removal.
5.5 AUTHORITY. Officers and agents shall have such authority and perform such duties in the management of the Corporation as are provided in these Bylaws or as may be determined by resolution of the Board of Directors not inconsistent with these Bylaws.
5.6 REMOVAL. Any officer or agent elected or appointed by the Board of Directors may be removed with or without cause by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.
5.7 VACANCIES. Any vacancy occurring in any office of the Corporation (by death, resignation, removal or otherwise) shall be filled by the Board of Directors.
5.8 COMPENSATION. The compensation of all officers and agents of the Corporation shall be fixed from time to time by the Board of Directors .
5.9 CHAIRMAN OF THE BOARD. If a Chairman of the Board is elected, he shall be chosen from among the Directors. The Chairman of the Board shall have the power to call special meetings of the stockholders and of the Directors for any purpose or purposes, and he shall preside at all meetings of the Board of Directors, unless he shall be absent or unless he shall, at his election, designate the Vice-Chairman, if one is elected, to preside in his stead. The Chairman of the Board shall submit a report as to the operations of the Corporation for the preceding fiscal year to the Board of Directors as soon as practicable in each year and, with the Chief Executive Officer, to the stockholders at or prior to each annual meeting of the stockholders, and the Chairman of the Board shall from time to time report to the Board of Directors matters within his knowledge which the interest of the Corporation may require to be so reported. The Chairman of the Board shall advise and counsel the Chief Executive Officer and other officers of the Corporation and shall exercise such powers and perform such duties as shall be assigned to or required by him from time to time by the Board of Directors.
5.10 VICE CHAIRMAN. The Vice Chairman, if one is elected, shall have the power to call special meetings of the stockholders and of the Directors for any purpose or purposes, and, in the absence of the Chairman of the Board, the Vice Chairman shall preside at all meetings of the Board of Directors unless he shall be absent. The Vice Chairman shall advise and counsel the other officers of the Corporation and shall exercise such powers and perform such duties as shall be assigned to or required of him from time to time by the Board of Directors.
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5.11 CHIEF EXECUTIVE OFFICER. Subject to the supervision of the Board of Directors, the Chief Executive Officer, if one is elected, shall have general supervision, management, direction and control of the business and affairs of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise executed and except where the execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The Chief Executive Officer shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board and the Vice Chairman, at all meetings of the Board of Directors. The Chief Executive Officer shall be ex officio a member of the Executive Committee, if any, of the Board of Directors. The Chief Executive Officer shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall perform such other duties and possess such other authority and powers as the Board of Directors may from time to time prescribe. The Chief Executive Officer shall have general supervision and direction of all other officers, agents and employees of the Corporation to see that their respective duties are properly performed. In the event no individual is elected to the office of Chief Operating Officer, the Chief Executive Officer shall have the powers and perform the duties of the Chief Operating Officer.
5.12 CHIEF OPERATING OFFICER. Subject to the supervision of the Board of Directors, the Chief Operating Office, if one is elected, shall have general supervision of the day to day operations of the Corporation. The Chief Operating Officer shall be ex officio a member of the Executive Committee, if any, of the Board of Directors. The Chief Operating Officer shall have the general powers and duties of management usually vested in the office of chief operating officer of a corporation and shall perform such other duties and possess such other authority and powers as the Board of Directors may from time to time prescribe.
5.13 PRESIDENT. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all the restrictions upon the Chief Executive Officer, including the power to sign all instruments and to take all actions when the Chief Executive Officer is authorized to perform by the Board of Directors or the Bylaws. The President shall have the general powers and duties usually vested in the office of president of a corporation and shall perform such other duties and possess such other authority and powers as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate.
5.14 VICE PRESIDENTS. The Vice President, or if there shall be more than one, the Vice Presidents in the order determined by the majority vote of the Board of Directors, shall, in the prolonged absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate.
5.15 SECRETARY. The Secretary shall be the custodian of and shall maintain the corporate books and records and shall record or see to the proper recording of all proceedings of the meetings of the stockholders and the Board of Directors of the Corporation in a book to be maintained for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, or the President. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall have the authority to sign stock certificates and shall perform all duties usually vested in the office of the secretary of a corporation and shall perform such other duties and possess such other powers as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate.
5.16 ASSISTANT SECRETARIES. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate.
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5.17 TREASURER. The Treasurer shall be the chief accounting and financial officer of the Corporation and shall have control of and shall be responsible for all matters pertaining to the accounts and finances of the Corporation. The Treasurer shall audit all payrolls and vouchers of the Corporation and shall direct the manner of certifying the same; shall supervise the manner of keeping all vouchers for payments by the Corporation and all other documents relating to such payments; shall receive, audit and consolidate all operating and financial statements of the Corporation and its various departments, shall have supervision of the books of account of the Corporation, their arrangement and classification, shall supervise the accounting and auditing practices of the Corporation and shall have charge of all matters relating to taxation. The Treasurer shall have the care and custody of all monies, funds and securities of the Corporation; shall depositor cause to be deposited all such funds in and with such depositories as the Board of Directors shall from time to time direct or as shall be selected in accordance with procedures established by the Board of Directors; shall advise upon all terms of credit granted by the Corporation; shall be responsible for the collection of all its accounts and shall cause to be kept full and accurate accounts of all receipts and disbursements of the Corporation. The Treasurer shall have the power to endorse for deposit or collection or otherwise all checks, drafts, notes, bills of exchange and other commercial paper payable to the Corporation and to give proper receipts or discharges for all payments to the Corporation. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer (and Chairman of the Board, if one is elected) and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control owned by the Corporation. The Treasurer shall perform such other duties and have such other authority and powers as to the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate.
5.18 ASSISTANT TREASURER. The Assistant Treasurer, or if there be more than one, the Assistant Treasurers in the order determined by the Board of directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate.
ARTICLE 6
INDEMNIFICATION
6.1 MANDATORY INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party, or who was or is a witness without being named a party, to any threatened, pending or completed action, claim, suit or proceeding, whether civil, criminal, administrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding (a "Proceeding"), by reason of the fact that such individual is or was a Director or officer of the Corporation, or while a Director or officer of the Cooperation is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another corporation, partnership, trust, employee benefit plan or other enterprise, shall be indemnified and held harmless by the Corporation from and against any judgments, penalties (including excise taxes), fines, amounts paid in settlement and reasonable expenses (including court costs and attorneys' fees) actually incurred by such settlement and reasonable expenses (including court costs and attorneys' fees) actually incurred by such person in connection with such Proceeding if it is determined that he acted in good faith and reasonably believed (i) in the case of conduct in his official capacity on behalf of the Corporation that his conduct was in the Corporation's best interests, (ii) in all other cases, that his conduct was not opposed to the best interests of the Corporation, and (iii) with respect to any Proceeding which is a criminal action, that he had no reasonable cause to believe his conduct was unlawful; provided, however, that in the event a determination is made that such person is liable to the Corporation or is found liable on the basis that personal benefit was improperly received by such person, the indemnification is limited to reasonable expenses actually incurred by such person in connection with the Proceeding and shall not be made in respect of any Proceeding in which such person shall have been found liable for willful or intentional misconduct in the performance of his duty to the Corporation. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself be determinative of whether the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any Proceeding which is a criminal action, had reasonable cause to believe that his conduct was unlawful. A person shall be deemed to have been found liable in respect of any claim, issue or matter only after the person shall be been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom.
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6.2 DETERMINATION OF INDEMNIFICATION. Any indemnification under the foregoing Section 6.1 (unless ordered by a court of competent jurisdiction) shall be made by the Corporation only upon a determination that indemnification of such person is proper in the circumstances by virtue of the fact that it shall have been determined that such person has met the applicable standard of conduct. Such determination shall be made (1) by a majority of a quorum consisting of Directors who at the time of the vote are not named defendants or respondents in the Proceeding; (2) if such quorum cannot be obtained, by a majority vote of a committee of the Board of Directors, designated to act in the matter by a majority of all Directors, consisting of two or more Directors who at the time of the vote are not named defendants or respondents in the Proceeding; (3) by special legal counsel (in a written opinion) selected by the Board of Directors or a committee of the Board by a vote as set forth in Subsection (1) or (2) of this Section, or, if such quorum cannot be established, by a majority vote of all Directors (in which Directors who are named defendants or respondents in the Proceeding may participate); or (4) by the stockholders of the Corporation in a vote that excludes the shares held by Directors who are named defendants or respondents in the Proceeding.
6.3 ADVANCE OF EXPENSES. Reasonable expenses, including court costs and attorneys' fees, incurred by a person who was or is a witness or who was or is named as a defendant or respondent in a Proceeding, by reason of the fact that such individual is or was a Director or officer of the Corporation, or while a Director or officer of the Corporation is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another corporation, partnership, trust, employee benefit plan or other enterprise, shall be paid by the Corporation at reasonable intervals in advance of the final disposition of such Proceeding, and without the determination set forth in Section 6.2, upon receipt by the Corporation of a written affirmation by such person of his good faith belief that he has met the standard of conduct necessary for indemnification under this Article 6, and a written undertaking by or on behalf of such person to repay the amount paid or reimbursed by the Corporation if it is ultimately determined that he is not entitled to be indemnified by the Corporation as authorized in this Article 6. Such written undertaking shall be an unlimited obligation of such person and it may be accepted without reference to financial ability to make repayment.
6.4 PERMISSIVE INDEMNIFICATION. The Board of Directors of the Corporation may authorize the Corporation to indemnify employees or agents of the Corporation, and to advance the reasonable expenses of such persons, to the same extent, following the same determinations and upon the same conditions as are required for the indemnification of and advancement of expenses to Directors and officers of the Corporation.
6.5 NATURE OF INDEMNIFICATION. The indemnification and advancement of expenses provided hereunder shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the Certificate of Incorporation, these Bylaws, any agreement, vote of stockholder or disinterested Directors or otherwise, both as to actions taken in an official capacity and as to actions taken in any other capacity while holding such office, shall continue as to a person who has ceased to be a Director, officer, employee or agent of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such person.
6.6 INSURANCE. The Corporation shall have the power and authority to purchase and maintain insurance or another arrangement on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary or another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, against any liability, claim, damage, loss or risk asserted against such person and incurred by such person in any capacity or arising out of the status of such person as such, irrespective of whether the Corporation would have the power to indemnify and hold such person harmless against such liability under the provisions hereof. If the insurance or other arrangement is with a person or entity that is not regularly engaged in the business of providing insurance coverage, the insurance or arrangement may provide for payment of a liability with respect to which the Corporation would not have the power to indemnify the person only if including coverage for the additional liability has been approved by the stockholders of the Corporation. Without limiting the power of the Corporation to procure or maintain any kind of insurance or other arrangement, the Corporation may, for the benefit of persons indemnified by the Corporation, (1) create a trust fund; (2) establish any form of self-insurance; (3) secure its indemnity obligation by grant of a security interest or other lien on the assets of the Corporation; or (4) establish a letter of credit, guaranty, or surety arrangement. The insurance or other arrangement may be procured, maintained, or established within the Corporation or with any insurer or other person deemed appropriate by the Board of Directors regardless of whether all or part of the stock or other securities of the insurer or other person are owned in whole or in part by the Corporation. In the absence of fraud, the judgment of the Board of Directors as to the terms and conditions of the insurance or other arrangement and the identity of the insurer or other person participating in the arrangement shall be conclusive and the insurance or arrangement shall not be voidable and shall not subject the Directors approving the insurance or arrangement to liability, on any ground, regardless of whether the Directors participating in the approval is a beneficiary of the insurance or arrangement.
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ARTICLE 7
STOCK CERTIFICATES AND TRANSFER REGULATIONS
7.1 DESCRIPTION OF CERTIFICATES. The Shares of the capital stock of the Corporation shall be represented by certificates in the form approved by the Board of Directors and signed in the name of the Corporation by the Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, the President or a Vice President and the Secretary or an Assistant Secretary of the Corporation, and sealed with the seal of the Corporation or a facsimile thereof. Each certificate shall state on the face thereof the name of the holder, the number and class of shares, the par value of shares covered thereby or a statement that such shares are without par value, and such other matters as are required by law. At such time as the Corporation may be authorized to issue shares of more than one class, every certificate shall set forth upon the face or back of such certificate a statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued, as required by the laws of the State of Delaware, or may state that the Corporation will furnish a copy of such statement without charge to the holder of such certificate upon receipt of a written request therefor from such holder.
7.2 ENTITLEMENT TO CERTIFICATES. Every holder of the capital stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, the President or a Vice President and the Secretary or an Assistant Secretary of the Corporation, certifying the class of capital stock and the number of shares represented thereby as owned or held by such stockholder in the Corporation.
7.3 SIGNATURES. The signatures of the Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, the President, the Vice President, the Secretary or the Assistant Secretary upon a certificate may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been placed upon any such certificate or certificates, shall cease to serve as such officer or officers of the corporation, whether because of death, resignation, removal or otherwise, before such certificate or certificates are issued and delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered with the same effect as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to serve as such officer or officers of the Corporation.
7.4 ISSUANCE OF CERTIFICATES. Certificates evidencing shares of its capital stock (both treasury and authorized but unissued) may be issued for such consideration (not less than par value, except for treasury shares which may be issued for such consideration) and to such persons as the Board of Directors may determine from time to time. Shares shall not be issued until the full amount of the consideration, fixed as provided by law, has been paid.
7.5 PAYMENT FOR SHARES. Consideration for the issuance of shares shall be paid, valued and allocated as follows:
(a) CONSIDERATION. The consideration for the issuance of shares shall consist of any tangible or intangible benefit to the Corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation.
(b) VALUATION. In the absence of fraud in the transaction, the determination of the Board of Directors as to the value of consideration received shall be conclusive.
(c) EFFECT. When consideration, fixed as provided by law, has been paid, the shares shall be deemed to have been issued and shall be considered fully paid and nonassessable.
(d) ALLOCATION OF CONSIDERATION. The consideration received for shares shall be allocated by the Board of Directors, in accordance with law, between the stated capital and capital surplus accounts.
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7.6 SUBSCRIPTIONS. Unless otherwise provided in the subscription agreement, subscriptions of shares, whether made before or after organization of the Corporation, shall be paid in full in such installments and at such times as shall be determined by the Board of Directors. Any call made by the Board of Directors for payment on subscriptions shall be uniform as to all shares of the same class and series. In case of default in the payment of any installment or call when payment is due, the Corporation may proceed to collect the amount due in the same manner as any debt due to the Corporation.
7.7 RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to receive a distribution by the Corporation (other than a distribution involving a purchase or redemption by the Corporation or any of its own shares) or a share dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may fix a record date for any such determination of stockholders, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) days, and in the case of a meeting of stockholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive a distribution (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares) or a share dividend, the date before the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section, such determination shall be applied to any adjournment thereof.
7.8 REGISTERED OWNERS. Prior to due presentment for registration of transfer of a certificate evidencing shares of the capital stock of the Corporation in the manner set forth in Section 7.10 hereof, the Corporation shall be entitled to recognize the person registered as the owner of such shares on its books (or the books of its duly appointed transfer agent, as the case may be) as the person exclusively entitled to vote, to receive notices and dividends with respect to, and otherwise exercise all rights and powers relative to such shares; and the Corporation shall not be bound or otherwise obligated to recognize any claim, direct or indirect, legal or equitable, to such shares by any other person, whether or not it shall have actual, express or other notice thereof, except as otherwise provided by the laws of Delaware.
7.9 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation shall issue a new certificate in place of any certificate for shares previously issued if the registered owner of the certificate satisfies the following conditions:
(a) PROOF OF LOSS. Submits proof in affidavit form satisfactory to the Corporation that such certificate has been lost, destroyed or wrongfully taken;
(b) TIMELY REQUEST. Requests the issuance of a new certificate before the Corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;
(c) BOND. Gives a bond in such form, and with such surety or sureties, with fixed or open penalty, as the Corporation may direct, to indemnify the Corporation (and its transfer agent and registrar, if any) against any claim that may be made or otherwise asserted by virtue of the alleged loss, destruction, or theft of such certificate or certificates; and
(d) OTHER REQUIREMENTS. Satisfies any other reasonable requirements imposed by the Corporation.
In the event a certificate has been lost, apparently destroyed or wrongfully taken, and the registered owner of record fails to notify the Corporation within a reasonable time after he has notice of such loss, destruction, or wrongful taking, and the Corporation registers a transfer (in the manner hereinbelow set forth) of the shares represented by the certificate before receiving such notification, such prior registered owner of record shall be precluded from making any claim against the Corporation for the transfer required hereunder or for a new certificate.
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7.10 REGISTRATION OF TRANSFERS. Subject to the provisions hereof, the Corporation shall register the transfer of a certificate evidencing shares of its capital stock presented to it for transfer if:
(a) ENDORSEMENT. Upon surrender of the certificate to the Corporation (or its transfer agent, as the case may be) for transfer, the certificate (or an appended stock power) is properly endorsed by the registered owner, or by his duly authorized legal representative or attorney-in-fact, with proper written evidence of the authority and appointment of such representative, if any, accompanying the certificate;
(b) GUARANTY AND EFFECTIVENESS OF SIGNATURE. The signature of such registered owner or his legal representative or attorney-in-fact, as the case may be, has been guaranteed by a national banking association or member of the New York Stock Exchange, and reasonable assurance in a form satisfactory to the Corporation is given that such endorsements are genuine and effective;
(c) ADVERSE CLAIMS. The Corporation has no notice of an adverse claim or has otherwise discharged any duty to inquire into such a claim;
(d) COLLECTION OF TAXES. Any applicable law (local, state or federal) relating to the collection of taxes relative to the transaction has been complied with; and
(e) ADDITIONAL REQUIREMENTS SATISFIED. Such additional conditions and documentation as the Corporation (or its transfer agent, as the case may be) shall reasonably require, including without limitation thereto, the delivery with the surrender of such stock certificate or certificates of proper evidence of succession, assignment or other authority to obtain transfer thereof, as the circumstances may require, and such legal opinions with reference to the requested transfer as shall be required by the Corporation (or its transfer agent) pursuant to the provisions of these Bylaws and applicable law, shall have been satisfied.
7.11 RESTRICTIONS ON TRANSFER AND LEGENDS ON CERTIFICATES.
(a) SHARES IN CLASSES OR SERIES. If the Corporation is authorized to issue shares of more than one class, the certificate shall set forth, either on the face or back of the certificate, a full or summary statement of all of the designations, preferences, limitations, and relative rights of the shares of each such class and, if the Corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences of the shares of each such series so far as the same have been fixed and determined, and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series. In lieu of providing such a statement in full on the certificate, a statement on the face or back of the certificate may provide that the Corporation will furnish such information to any stockholder without charge upon written request to the Corporation at its principal place of business or registered office and that copies of the information are on file in the office of the Secretary of State.
(b) RESTRICTION ON TRANSFER. Any restrictions imposed by the Corporation on the sale or other disposition of its shares and on the transfer thereof must be copied at length or in summary form on the face, or so copied on the back and referred to on the face, of each certificate representing shares to which the restriction applies. The certificate may however state on the face or back that such a restriction exists pursuant to a specified document and that the Corporation will furnish a copy of the document to the holder of the certificate without charge upon written request to the Corporation at its principal place of business.
(c) UNREGISTERED SECURITIES. Any security of the Corporation, including, among others, any certificate evidencing shares of the capital stock of the Corporation or warrants to purchase shares of capital stock of the Corporation, which is issued to any person without registration under the Securities Act of 1933, as amended, or the Blue Sky laws of any state, shall not be transferable until the Corporation has been furnished with a legal opinion of counsel with reference thereto, satisfactory in form and content to the Corporation and its counsel, to the effect that such sale, transfer or pledge does not involve a violation of the Securities Act of 1933, as amended, or the Blue Sky laws of any state having jurisdiction. The certificate representing the security shall bear substantially the following legend:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE CORPORATION SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR TRANSFER.
ARTICLE 8
GENERAL PROVISIONS
8.1 DIVIDENDS. Subject to the provisions of the General Corporation Law of Delaware, as amended, and the Certificate of Incorporation, dividends of the Corporation shall be declared and paid pursuant to the following regulations:
(a) DECLARATION AND PAYMENT. Dividends on the issued and outstanding shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting and may be paid in cash, in property, or in shares of capital stock. Such declaration and payment shall be at the discretion of the Board of Directors.
(b) RECORD DATE. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to receive payment of any dividend, such record date to be not more than sixty (60) days prior to the payment date of such dividend, or the Board of Directors may close the stock transfer books for such purpose for a period of not more than sixty (60) days prior to the payment date of such dividend. In the absence of action by the Board of Directors, the date upon which the Board of Directors adopts the resolution declaring such dividend shall be the record date.
8.2 RESERVES. There may be created by resolution of the Board of Directors out of the surplus of the Corporation such reserve or reserves as the Board of Directors from time to time, in its discretion, think proper to provide for contingencies, or to repair or maintain any property of the Corporation, or for such other purposes as the Board of Directors shall think beneficial to the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
8.3 BOOKS AND RECORDS. The Corporation shall maintain correct and complete books and records of account and shall prepare and maintain minutes of the proceedings of its stockholders, its Board of Directors and each committee of its Board of Directors. The Corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of original issuance of shares issued by the Corporation and a record of each transfer of those shares that have been presented to the Corporation for registration or transfer. Such records shall contain the names and addresses of all past and present stockholders and the number and class of the shares issued by the Corporation held by each.
8.4 ANNUAL STATEMENT. The Board of Directors shall present at or before each annual meeting of stockholders a full and clear statement of the business and financial condition of the Corporation, including a reasonably detailed balance sheet and income statement under current date.
8.5 CONTRACTS AND NEGOTIABLE INSTRUMENTS. Except as otherwise provided by law or these Bylaws, any contract or other instrument relative to the business of the Corporation may be executed and delivered in the name of the Corporation and on its behalf by the Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer or the President of the Corporation. The Board of Directors may authorize any other officer or agent of the Corporation to enter into any contract or execute and deliver any contract in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances as the Board of Directors may determine by resolution. All bills, notes, checks or other instruments for the payment of money shall be signed or countersigned by such officer, officers, agent or agents and in such manner as are permitted by these Bylaws and/or as, from time to time, may be prescribed by resolution of the Board of Directors. Unless authorized to do so by these Bylaws or by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement, or to pledge its credit, or to render it liable pecuniarily for any purpose or to any amount.
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8.6 FISCAL YEAR. The fiscal year of the Corporation shall be the calendar year.
8.7 CORPORATE SEAL. The Corporation seal shall be in such form as may be determined by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.
8.8 RESIGNATIONS. Any Director, officer or agent may resign his office or position with the Corporation by delivering written notice thereof to the Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, the President or the Secretary. Such resignation shall be effective at the time specified therein, or immediately upon delivery if no time is specified. Unless otherwise specified therein, an acceptance of such resignation shall not be a necessary prerequisite of its effectiveness.
8.9 AMENDMENT OF BYLAWS. These Bylaws may be altered, amended, or repealed and new Bylaws adopted at any meeting of the Board of Directors or stockholders at which a quorum is present, by the affirmative vote of a majority of the Directors or stockholders, as the case may be, present at such meeting, provided notice of the proposed alteration, amendment, or repeal be contained in the notice of such meeting.
8.10 CONSTRUCTION. Whenever the context so requires herein, the masculine shall include the feminine and neuter, and the singular shall include the plural, and conversely. If any portion or provision of these Bylaws shall be held invalid or inoperative, then, so far as is reasonable and possible: (1) the remainder of these Bylaws shall be considered valid and operative, and (2) effect shall be given to the intent manifested by the portion or provision held invalid or inoperative.
8.11 TELEPHONE MEETINGS. Stockholders, Directors or members of any committee may hold any meeting of such stockholders, Directors or committee by means of conference telephone or similar communications equipment which permits all persons participating in the meeting to hear each other and actions taken at such meetings shall have the same force and effect as if taken at a meeting at which persons were present and voting in person. The Secretary of the Corporation shall prepare a memorandum of the action taken at any such telephonic meeting.
8.12 TABLE OF CONTENTS; CAPTIONS. The table of contents and captions used in these Bylaws have been inserted for administrative convenience only and do not constitute matter to be construed in interpretation.
IN DUE CERTIFICATION WHEREOF, the undersigned, being the Secretary of Intrusion Inc., confirms the adoption and approval of the foregoing restated Bylaws, effective as of the 27th day of September 2023.
/s/ DOUGLAS D. HALOFTIS
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Douglas D. Haloftis, CORPORATE SECRETARY
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Exhibit 10.1
UNITED STATES DISTRICT COURT
DISTRICT OF DELAWARE
| NATHAN PRAWITT, derivatively on behalf | ) | |
| of INTRUSION, INC., | ) | |
| ) | ||
| Plaintiff, | ) | Civil Action No.: 1:22-cv-00735-MN |
| ) | ||
| v. | ) | |
| ) | ||
| JACK B. BLOUNT, MICHAEL L. PAXTON, | ) | |
| B. FRANKLIN BYRD, P. JOE HEAD, GARY ) | ) | |
| DAVIS, JAMES F. GERO, ANTHONY | ) | |
| SCOTT, ANTHONY J. LEVECCHIO, | ) | |
| KATRINKA B. MCCALLUM, JAMIE M. | ) | |
| SCHNUR, GREGORY K. WILSON, | ) | |
| ) | ||
| Defendants, | ) | |
| ) | ||
| -and- | ) | |
| ) | ||
| INTRUSION, INC., | ) | |
| ) | ||
| Nominal Defendant | ) |
STIPULATION OF COMPROMISE AND SETTLEMENT
This Stipulation of Compromise and Settlement (the “Stipulation”) is made and entered into as of September 28, 2023. Plaintiff Nathan Prawitt (“Plaintiff”), derivatively on behalf of nominal defendant Intrusion, Inc. (“Intrusion” or the “Company”) and defendants Jack B. Blount, Michael L. Paxton, B. Franklin Byrd, P. Joe Head, Gary Davis, James F. Gero, Anthony Scott, Anthony J. Levecchio, Katrinka B. McCallum, Jamie M. Schnur, and Gregory K. Wilson (collectively, the “Individual Defendants” and, together with Intrusion, the “Defendants”), by and through their undersigned attorneys, have reached an agreement for the settlement of the above captioned action (the “Action”) on the terms set forth below (the “Settlement”) and subject to Court approval pursuant to Rule 23.1 of the Federal Rules of Civil Procedure. This Stipulation is intended to fully, finally, and forever resolve, discharge, and settle all claims asserted in the Action, and all claims relating to the transactions challenged in the Action, except for any claims Defendants or Nominal Defendant may have against insurers, co-insurers or reinsurers, which claims are not otherwise released pursuant to other documentation.
Summary of the Action
A. Intrusion, a Delaware corporation with principal executive offices in Plano, Texas, develops and sells products to protect against cyberattacks through purported advanced threat intelligence and artificial intelligence. Intrusion’s TraceCop product maintains databases of malicious Internet Protocol and Transmission Control Protocol addresses and prevents their access to protected networks. Intrusion Savant is a network data capture and analysis tool that records and reports network activity to product users.
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B. In or about May 2020, it was disclosed that the Company was developing a new product which used artificial intelligence (“AI”) to identify and stop cyberattacks, including “zero day” attacks that exploit both known and unknown computer software vulnerabilities, in real time and without the need for human intervention. Purportedly, this new product would be fully compatible with existing security measures and require minimal adjustments for use on existing networks. This new product, “Shield,” leveraged Intrusion’s TraceCop database and its Savant product, which does real-time analysis, and combining them with AI capabilities.
C. Plaintiff alleged that throughout the Relevant Period (October 14, 2020 through August 26, 2021), the Individual Defendants issued and/or caused the issuance of materially misleading statements concerning the Company’s Shield product, including statements concerning the design and capabilities of Shield, the parameters and purported success of product testing, and the number and identity of customers who purportedly purchased Shield.
D. In April 2021, White Diamond Research (“White Diamond”) issued a report publicizing some of the problems with Shield and other issues concerning the Company. While Intrusion publicly refuted the White Diamond report, Intrusion failed to rollout the 50,000 product seats for Shield that it had previously forecast and, therefore, failed to meet revenue expectations from those sales. Thereafter, Intrusion laid off approximately 20% of its workers and it was subsequently disclosed that the United States Securities and Exchange Commission (the “SEC”) had commenced an investigation of the Company.
E. On April 16, 2021, a securities class action, Celeste v. Intrusion, Inc. et al., Case No. 4:21-cv-00307 (E.D. Tex.), was filed in the United States District Court for the Eastern District of Texas, for violations of the Securities Exchange Act of 1934 (the “Exchange Act”). On May 14, 2021, a second securities class action, Neely v. Intrusion, Inc. et al., was filed in the United States District Court for the Eastern District of Texas, also alleging violations of the Exchange Act. On November 23, 2021, the securities class actions were consolidated (the “Securities Action”) and, on February 7, 2022, an amended complaint was filed in the Securities Action (the “Securities Complaint”). On April 13, 2022, the Securities Action was stayed to permit the parties to file a motion for preliminary approval of class action settlement.
F. On June 3, 2022, Plaintiff filed the Verified Stockholder Derivative Complaint in the Action, alleging violation of the § 10(b) of the Exchange Act and Rule 10b-5, as well as state law claims for breach of fiduciary duties, unjust enrichment, and waste of corporate assets against the Individual Defendants on behalf of the Company.
G. On December 16, 2022, the United States District Court for the Eastern District of Texas entered a Final Judgment approving the settlement of the Securities Action which, inter alia, provided for the payment of $3,250,000 in cash to the members of the class.
H. On December 20, 2022, Plaintiff and Defendants (collectively, the “Parties”) filed a Stipulation and Proposed Order Staying Case to stay the Action for sixty (60) days to permit counsel for the Parties an opportunity to meet and confer about how to proceed and submit a proposed schedule for the Court’s consideration. That Proposed Order was granted the same day. Thereafter, the Court entered Orders extending the stay to permit the Parties to discuss possible settlement of the Action.
I. In or about January 2023, the Parties commenced arm’s-length negotiations concerning a possible resolution of the Action. After approximately seven (7) months of arduous negotiations, the Parties reached an agreement-in-principle to fully resolve all claims in the Action on or about July 21, 2023.
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Plaintiff’s Claims and the Benefits of the Settlement
J. Plaintiff believes that the claims asserted in the Action have merit, but also believes that the Settlement set forth below provides substantial and immediate benefits for Intrusion and its current stockholders. In addition to these substantial benefits, Plaintiff and h i s counsel have considered: (i) the attendant risks of continued litigation and the uncertainty of the outcome of the Action; (ii) the probability of success on the merits; (iii) the inherent problems of proof associated with, and possible defenses to, the claims asserted in the Action; (iv) the desirability of permitting the Settlement to be consummated according to its terms; (v) the expense and length of continued proceedings necessary to prosecute the Action against the Individual Defendants through trial and appeals; and (vi) the conclusion of Plaintiff and his counsel that the terms and conditions of the Settlement are fair, reasonable, and adequate, and that it is in the best interests of Intrusion and its current stockholders to settle the Action on the terms set forth herein.
K. Based on Plaintiff’s counsel’s thorough review and analysis of the relevant facts, allegations, defenses, and controlling legal principles, Plaintiff’s counsel believe that the Settlement set forth in this Stipulation is fair, reasonable, and adequate, and confers substantial benefits upon the Company and its current stockholders. Based upon Plaintiff’s Counsel’s evaluation as well as his own evaluation, Plaintiff has determined that the Settlement is in the best interests of Intrusion and its current stockholders and has agreed to settle the Action upon the terms and subject to the conditions set forth herein.
Defendants’ Denials of Wrongdoing and Liability
L. The Defendants deny all allegations of wrongdoing, liability, violations of law or damages arising out of or related to any of the conduct, statements, acts, or omissions alleged in the Action, and maintain that their conduct was at all times proper, in good faith, in the best interests of Intrusion and its stockholders, and in compliance with applicable law. The Defendants further specifically deny any violation of the federal securities laws, breach of fiduciary duties, unjust enrichment, or waste of corporate assets as alleged in the Action. The Defendants affirmatively assert that they complied with all applicable federal securities laws and rules, and they fulfilled their fiduciary duties. Defendants also deny that Intrusion and/or its stockholders were harmed by any conduct of the Defendants alleged in the Action or that could have been alleged therein. Each of the Defendants asserts that, at all relevant times, they acted in good faith and in a manner they reasonably believed to be in the best interests of Intrusion and all of its stockholders.
M. Defendants, however, recognize the uncertainty and the risk inherent in any litigation, and the difficulties and substantial burdens, expense, and length of time that may be necessary to defend these proceedings through the conclusion of trial, post-trial motions, and appeals. In particular, Defendants are cognizant of the burdens this litigation is imposing on Intrusion and its management, and the impact that continued litigation may have on management’s ability to continue focusing on the creation of stockholder value. Defendants wish to eliminate the uncertainty, risk, burden, and expense of further litigation, and to permit the operation of Intrusion without further distraction and diversion of its directors and executive personnel with respect to the Action. Defendants have therefore determined to settle the Action on the terms and conditions set forth in this Stipulation solely to put the Released Claims (as defined herein) to rest, finally and forever, without in any way acknowledging any wrongdoing, fault, liability, or damages and expressly denying same.
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, BY AND AMONG THE PARTIES TO THIS STIPULATION, subject to the approval of the Court pursuant to Rule 23.1 of the Federal Rules of Civil Procedure, that the Action shall be fully and finally compromised and settled, the Released Claims shall be released as against the Releasees (as defined below), and the Action shall be dismissed with prejudice, upon and subject to the following terms and conditions:
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I. DEFINITIONS
1.1. “Action” means the above-captioned action, Prawitt v. Blount, et al., Case No. 1:22-cv-00735-MN (D. Del.), filed in the United States District Court for the District of Delaware on June 3, 2022.
1.2. “Company” means nominal defendant Intrusion, Inc.
1.3. “Defendants” means defendants Jack B. Blount, Michael L. Paxton, B. Franklin Byrd, P. Joe Head, Gary Davis, James F. Gero, Anthony Scott, Anthony J. Levecchio, Katrinka B. McCallum, Jamie M. Schnur, Gregory K. Wilson and nominal defendant Intrusion, Inc., collectively.
1.4. “Defendants’ Counsel” means Greenberg Traurig, LLP and McCarter & English, LLP.
1.5. “Defendants’ Releasees” means Intrusion, the Individual Defendants, and any other current or former officer, director, or employee of Intrusion, and their respective past, present, or future family members, spouses, heirs, trusts, trustees, executors, estates, administrators, beneficiaries, distributees, foundations, agents, employees, fiduciaries, partners, partnerships, general or limited partners or partnerships, joint ventures, member firms, limited liability companies, corporations, parents, subsidiaries, divisions, affiliates, associated entities, stockholders, principals, officers, directors, managing directors, members, managing members, managing agents, predecessors, predecessors-in-interest, successors, successors-in-interest, assigns, financial advisors, advisors, consultants, attorneys, personal or legal representatives, auditors, accountants, associates and insurers, co-insurers and re-insurers.
1.6. “Effective Date” means the date that the Judgment, which approves in all material respects the releases provided for in the Stipulation and dismisses the Action with prejudice, becomes Final.
1.7. “Final” means, with respect to any judgment or order, that (i) if no appeal is filed, the expiration date of the time for filing or noticing of any appeal of the judgment or order; or (ii) if there is an appeal from the judgment or order, the date of (a) final dismissal of all such appeals, or the final dismissal of any proceeding on certiorari or otherwise to review the judgment or order, or (b) the date the judgment or order is finally affirmed on an appeal, the expiration of the time to file a petition for a writ of certiorari or other form of review, or the denial of a writ of certiorari or other form of review of the judgment or order, and, if certiorari or other form of review is granted, the date of final affirmance of the judgment or order following review pursuant to that grant. However, any appeal or proceeding seeking subsequent judicial review pertaining solely to an order issued with respect to attorneys’ fees or expenses shall not in any way delay or preclude the Judgment from becoming Final.
1.8. “Individual Defendants” means defendants Jack B. Blount, Michael L. Paxton, B. Franklin Byrd, P. Joe Head, Gary Davis, James F. Gero, Anthony Scott, Anthony J. Levecchio, Katrinka B. McCallum, Jamie M. Schnur, and Gregory K. Wilson, collectively.
1.9. “Intrusion” means nominal defendant Intrusion, Inc.
1.10. “Judgment” means the Order and Final Judgment entered by the Court dismissing the Action with prejudice, substantially in the form annexed hereto as Exhibit D.
1.11. “Notice” means the Notice of Pendency and of Settlement of Action, substantially in the form annexed hereto as Exhibit B.
1.12. “Person” means a natural person, individual, corporation, partnership, limited partnership, limited liability partnership, limited liability company, association, joint venture, joint stock company, estate, legal representative, trust, unincorporated association, government, or any political subdivision or agency thereof, any business or legal entity, and any spouse, heir, legatee, executor, administrator, predecessor, successor, representative, or assign of any of the foregoing.
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1.13. “Plaintiff” means plaintiff Nathan Prawitt.
1.14. “Plaintiff’s Counsel” means Rigrodsky Law, LLP and Grabar Law Office.
1.15. “Plaintiff’s Releasees” means Plaintiff, all other Intrusion stockholders, and any current or former officer or director of any Intrusion stockholder, and their respective past, present, or future family members, spouses, heirs, trusts, trustees, executors, estates, administrators, beneficiaries, distributees, foundations, agents, employees, fiduciaries, partners, partnerships, general or limited partners or partnerships, joint ventures, member firms, limited liability companies, corporations, parents, subsidiaries, divisions, affiliates, associated entities, stockholders, principals, officers, directors, managing directors, members, managing members, managing agents, predecessors, predecessors-in-interest, successors, successors-in-interest, assigns, financial advisors, advisors, consultants, attorneys, personal or legal representatives (including Plaintiff’s Counsel), auditors, accountants, and associates.
1.16. “Preliminary Approval Order” means an order, substantially in the form annexed hereto as Exhibit A, preliminarily approving the Settlement; approving the form of Notice of Pendency and of Settlement of Action, substantially in the form annexed hereto as Exhibit B; approving the form of Summary Notice of Pendency and of Settlement of Action, substantially in the form annexed hereto as Exhibit C; approving the method of giving notice; scheduling the dates for submission of papers in support of the settlement, objections to the Settlement, and a hearing on Final Approval of the Settlement.
1.17. “Released Defendants’ Claims” means any and all manner of claims, demands, rights, liabilities, losses, obligations, duties, damages, costs, debts, expenses, interest, penalties, sanctions, fees, attorneys’ fees, actions, potential actions, causes of action, suits, agreements, judgments, decrees, matters, issues, and controversies of any kind, nature, or description whatsoever, whether known or unknown, disclosed or undisclosed, accrued or unaccrued, apparent or not apparent, foreseen or unforeseen, matured or not matured, suspected or unsuspected, liquidated or not liquidated, fixed or contingent, including Unknown Claims, whether based on state, local, foreign, federal, statutory, regulatory, common, or other law or rule (including claims within the exclusive jurisdiction of the federal courts), that arise out of or relate in any way to the institution, prosecution, or settlement of the claims against Defendants in the Action, except for claims relating to the enforcement of the Settlement. For the avoidance of doubt, the Released Defendants’ Claims do not include claims based on the conduct of the Plaintiff’s Releasees after the Effective Date.
1.18. “Released Plaintiff’s Claims” means any and all manner of claims, demands, rights, liabilities, losses, obligations, duties, damages, costs, debts, expenses, interest, penalties, sanctions, fees, attorneys’ fees, actions, potential actions, causes of action, suits, agreements, judgments, decrees, matters, issues and controversies of any kind, nature, or description whatsoever, whether known or unknown, disclosed or undisclosed, accrued or unaccrued, apparent or not apparent, foreseen or unforeseen, matured or not matured, suspected or unsuspected, liquidated or not liquidated, fixed or contingent, including Unknown Claims, whether based on state, local, foreign, federal, statutory, regulatory, common, or other law or rule (including claims within the exclusive jurisdiction of the federal courts, such as, but not limited to, federal securities claims or other claims based upon the purchase or sale of Intrusion stock), that are, have been, could have been, could now be, or in the future could, can, or might be asserted, in the Action or in any other court, tribunal, or proceeding by Plaintiff or any other Intrusion stockholder derivatively on behalf of Intrusion or by Intrusion directly against any of the Defendants’ Releasees, which, now or hereafter, are based upon, arise out of, relate in any way to, or involve, directly or indirectly, any of the actions, transactions, occurrences, statements, representations, misrepresentations, omissions, allegations, facts, practices, events, claims or any other matters, things or causes whatsoever, or any series thereof, that relate in any way to, or could arise in connection with, the Action (or relate to or arise as a result of any of the events, acts or negotiations related thereto), including but not limited to those alleged, asserted, set forth, claimed, embraced, involved, or referred to in, or related to the complaints filed in the Action, except for claims relating to the enforcement of the Settlement. For the avoidance of doubt, the Released Plaintiff’s Claims include all of the claims asserted in the Action, but do not include claims based on conduct of Defendants’ Releasees after the Effective Date.
1.19. “Released Claims” means Released Plaintiff’s Claims and Released Defendants’ Claims.
1.20. “Releasees” means Plaintiff’s Releasees and Defendants’ Releasees.
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1.21. “Releases” means the releases set forth in Section II.B below.
1.22. “Settlement Hearing” means the hearing (or hearings) at which the Court will review and assess the adequacy, fairness, and reasonableness of the Settlement, and the appropriateness and amount of the award of attorneys’ fees, expenses, and service award to plaintiff to be awarded by the Court (as set forth in Sections IV-V, below).
1.23. “Summary Notice” means the Summary Notice of Pendency and of Settlement of Action, substantially in the form annexed hereto as Exhibit C.
1.24. “Unknown Claims” means any Released Plaintiff’s Claims that Intrusion, Plaintiff, or any other Intrusion stockholder does not know or suspect to exist in his, her, or its favor at the time of the release of the Defendants’ Releasees, and any Released Defendants’ Claims that any of the Defendants or any of the other Defendants’ Releasees does not know or suspect to exist in his, her, or its favor at the time of the release of the Plaintiffs’ Releasees, which, if known by him, her, or it, might have affected his, her, or its decision(s) with respect to the Settlement.
With respect to any and all Released Plaintiff’s Claims and Released Defendants’ Claims, the Parties stipulate and agree that Intrusion, Plaintiff and each of the Defendants shall expressly waive, and each of the other Intrusion stockholders and each of the other Defendants’ Releasees shall be deemed to have waived, and by operation of the Judgment shall have expressly waived, any and all provisions, rights, and benefits conferred by California Civil Code §1542, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY
and any law of any state or territory of the United States, or principle of common law or foreign law, which is similar, comparable, or equivalent to California Civil Code §1542. Intrusion, Plaintiff and each of the Defendants acknowledge, and each of the other Intrusion stockholders and each of the other Defendants’ Releasees and Plaintiff’s Releasees shall be deemed by operation of law to have acknowledged, that the foregoing waiver was separately bargained for and is a key element of the Settlement.
II. TERMS OF SETTLEMENT
A. SETTLEMENT CONSIDERATION
2.1. Within ninety (90) days of the Effective Date, Intrusion’s Board of Directors (the “Board”) shall adopt resolutions and amend its Bylaws, committee Charters, and other applicable corporate policies to implement the measures set forth below (the “Measures”), which shall remain in effect for no less than three (3) years (the “Term”):
(a) ENHANCEMENT OF THE AUDIT COMMITTEE
Intrusion shall adopt a resolution to amend its Audit Committee Charter. The amended Audit Committee Charter shall be posted on the Company’s website. The Audit Committee Charter shall be amended to provide that:
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1) The Audit Committee shall meet at least four (4) times annually and in separate executive sessions with the Company’s management, independent auditor, and General Counsel in carrying out its duties. The Chief Financial Officer (“CFO”) will not be present at such meetings. The Audit Committee shall meet quarterly in separate sessions with the Company’s General Counsel and outside counsel to review any legal matters pertinent to carrying out its duties;
2) The Audit Committee, in conjunction with Intrusion’s independent auditor, shall annually review staffing of the Company’s accounting department to ensure that necessary staffing levels of the accounting department are fulfilled and maintained;
3) The Audit Committee, in conjunction with the Disclosure Committee, the Company’s General Counsel, and the CFO, shall be responsible for monitoring Intrusion’s compliance with all public reporting requirements, as well as all other applicable laws, regulations and rules. Such monitoring shall include review of the Company’s periodic reports, including but not limited to the Company’s filings with the United States Securities and Exchange Commission (the “SEC”) on Forms 10-K, 10-Q, 8-K, and 14A (“SEC Filings”), to ensure the complete and accurate disclosure of material information;
4) The Audit Committee, in conjunction with the General Counsel, shall be responsible for investigating all potential or reported material violations of public reporting requirements, and other applicable laws, regulations and rules;
5) The Audit Committee shall prepare a written report to the full Board whenever any material violations of public reporting requirements and/or other applicable laws, regulations and rules are identified. This report shall include specific recommendations and/or proposals for mitigating such violations in the future;
6) The Audit Committee, in conjunction with the Nominating and Corporate Governance Committee (the “Governance Committee”), shall be responsible for monitoring compliance with Intrusion’s Code of Conduct. In the event that a violation of the Code of Conduct is sufficiently material to trigger a disclosure obligation, the Audit Committee will report the violation to the full Board;
7) The Audit Committee shall compile a list of potential independent auditors and shall conduct the necessary preemptive due diligence to ensure that the Company is not without a registered independent auditor for more than thirty (30) days upon the resignation or termination of its current registered independent auditor. Copies of the compiled list and any reports drafted during the due diligence process by the Audit Committee shall be provided to the full Board;
8) The Audit Committee shall conduct an annual review of the effectiveness of Intrusion’s internal controls over the Company’s compliance with public reporting requirements and/or other applicable laws, regulations and rules;
9) Within six (6) months of the Court’s final approval of the Settlement, the Audit Committee shall, with the assistance of an independent advisor, review the effectiveness of Intrusion’s newly implemented controls and procedures; and
10) The Audit Committee, in conjunction with the General Counsel, shall monitor the Company’s compliance with all applicable laws, regulations and/or rules concerning whistleblower complaints.
(b) ENHANCEMENT OF THE DISCLOSURE COMMITTEE
Intrusion shall adopt a resolution to amend its Disclosure Committee Charter. The amended Disclosure Committee Charter shall be posted on the Company’s website. The Disclosure Committee Charter shall be amended to provide that:
1) The Disclosure Committee shall consult, as necessary, with the Audit Committee, the Company’s General Counsel, the CFO, Intrusion’s senior officers, independent auditors, internal accountants, or outside legal counsel, to ensure that the Company’s public statements are accurate and complete in all material respects;
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2) The chair of the Disclosure Committee, or the chair’s designee, shall report at least quarterly to the Audit Committee concerning the activities undertaken by the Disclosure Committee to ensure that the Company’s public statements are accurate and complete in all material respects; and
3) The Disclosure Committee shall, at least annually, review and assess the nonfinancial metrics disclosed in Intrusion’s SEC Filings.
(c) RESPONSIBILITIES OF THE GENERAL COUNSEL
Intrusion shall adopt a resolution that, in conjunction with the Audit Committee and the Governance Committee, the General Counsel’s duties shall include, but are not limited to, oversight and administration of Intrusion’s corporate governance policies (including the Code of Conduct); fostering a culture that integrates compliance and ethics into business processes and practices through awareness and training; maintaining and monitoring a system for accurate public and internal disclosures, and reporting and investigating potential compliance and ethics concerns. The General Counsel will provide a written report to the Audit Committee and Governance Committee at least four (4) times annually and will promptly report to those committees any allegations of compliance and ethics concerns relating to violations of applicable laws or regulations, financial fraud or reporting violations.
The responsibilities and duties of Intrusion’s General Counsel, in conjunction with the Audit Committee and Governance Committee, shall include the following:
1) Evaluating and amending, as necessary, Intrusion’s ethics and compliance program in light of trends and changes in laws which may affect Intrusion’s compliance with all applicable laws, regulations, and rules;
2) Overseeing Intrusion’s ethics and compliance program, implementing procedures for monitoring and evaluating the program’s performance, and communicating with and informing the entire Board regarding progress toward meeting program goals;
3) Assessing organizational risk for misconduct and noncompliance with applicable laws, regulations, and rules; promptly reporting material risks relating to compliance or disclosure issues to the Audit Committee following identification of these risks; and making written recommendations for further evaluation and/or remedial action;
4) Performing an independent review of Intrusion’s draft quarterly and annual reports, filed with the SEC on Forms 10-K and 10-Q, and related materials prior to their publication to ensure the accuracy, completeness, and timeliness of disclosures relating to Intrusion’s compliance with all applicable laws, regulations, and rules;
5) Reviewing and approving Intrusion’s publicly disseminated statements, including but not limited to press releases, media articles, earnings calls, and investor presentations, prior to dissemination to ensure the accuracy, completeness, and timeliness of disclosures relating to Intrusion’s compliance with all applicable laws, regulations, and rules; and
6) Working with the Audit Committee to evaluate the accuracy, completeness, and timeliness of disclosures concerning the adequacy of Intrusion’s internal controls over financial reporting, compliance with all applicable laws, regulations, and rules, and ongoing and potential litigation and compliance issues.
(d) INTERNAL CONTROLS AND COMPLIANCE FUNCTIONS
The Board shall retain an independent consultant to conduct an annual analysis for each of the next two (2) years regarding appropriate steps Intrusion should take to test and then strengthen the internal control function, including, but not limited to, the accuracy of public disclosures and compliance with all applicable laws, regulations, and rules by taking the following actions:
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1) Identify necessary resources needed to effectively manage internal knowledge of risk exposure, existing laws, regulations, regulations and disclosure obligations;
2) Assess risks of noncompliance with laws and regulations, internal controls, and disclosure obligations, incorporating such risk assessments into internal audit procedures; and
3) Implement technology to improve auditing techniques, data mining, and predictive modeling with respect to compliance issues and risk exposure.
The consultant shall annually prepare a written report with recommended changes to Intrusion’s Audit Committee, Governance Committee, and General Counsel. This consultant shall meet annually with the Board, CEO, CFO, General Counsel, and Intrusion’s external auditors to present the written report in advance of Intrusion’s finalization of its annual Form 10-K report (regardless of whether the annual report on Form 10-K is a restatement, amended filing, or initial filing, and whether it is submitted late or on time). The Board shall consider implementation of each recommendation contained in the report. As to each recommendation contained in the report, the Board shall decide whether to implement the recommendation and shall prepare minutes setting forth the specific reason(s) for the decision (including the results of the Board vote for each recommendation that is not accepted). The consultant’s report shall be attached to the Board minutes as an exhibit. A copy of such minutes and the consultant’s report shall be maintained by the Audit Committee for a period of ten (10) years. Moreover, in the final report on Form 10-K issued after the Board’s evaluation of the consultant’s report, the Board shall include a summary of the consultant’s proposals, the Board’s determination regarding the proposals, and the reasons for such determination.
Intrusion’s CFO shall not have been employed by any of Intrusion’s outside auditor firms during the prior two (2) years or, if involved in the auditor firm’s audit of Intrusion, during the prior five (5) years.
(e) INSIDER TRADING CONTROLS
To the extent not already required, the Insider Trading Policy shall be amended as follows, and shall be posted, as amended, on the Company website. To the extent not already required, the Board shall require all insider transactions to be made subject to 10b5-1 trading plans (“Trading Plans”), which should be structured pursuant to the following rules:
1) The Trading Plans shall prohibit the commencement of trading until after the next regularly scheduled blackout period following a Trading Plan’s adoption;
2) The Trading Plans shall require that trading be conducted according to specific instructions or formulae with regard to amount, price, and date of transactions (i.e., an insider may not give his or her broker the right to determine whether and how to make transactions);
3) The Trading Plans shall have a minimum length of six (6) months, and shall not be subject to cancellation;
4) The adoption of a Trading Plan, and the aggregate number of shares involved, shall be publicly disclosed;
5) All Trading Plans shall be approved by the Company’s Audit Committee; and
6) A 10b5-1 Trading Plan will not be required if the stock is sold in the open window period.
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(f) ENHANCEMENT OF THE GOVERNANCE COMMITTEE
Intrusion shall adopt a resolution to amend the Governance Committee Charter. The amended Governance Committee Charter shall be posted on the Company’s website. The Governance Committee Charter shall require the following:
1) The Governance Committee shall meet with each prospective new Board member prior to his or her nomination to the Board and then recommend whether such individual shall be nominated for membership to the Board. Such review shall require, inter alia, a background check of each candidate;
2) Final approval of a director candidate shall be determined by the full Board. The decision on whether to recommend such person to the Board shall be disclosed to shareholders after a full review by the Board. Potential disqualifying conflicts of interests to be considered shall include familial relationships with Company officers or directors, interlocking directorships, and/or substantial business, civic, and/or social relationships with other members of the Board that could impair the prospective Board member’s ability to act independently from the other Board members; and
3) The Governance Committee shall work with the Audit Committee and General Counsel in fulfilling its duties related to the Company’s corporate governance guidelines and policies, and compliance therewith.
(g) ENHANCEMENTS TO THE COMPENSATION COMMITTEE CHARTER
Intrusion shall adopt a resolution to amend the Compensation Committee Charter. The amended Compensation Committee Charter shall be posted on the Company’s website. The Compensation Committee Charter shall require the following:
1) In determining, setting, or approving annual short-term compensation arrangements, the Compensation Committee shall consider the particular executive’s performance as it relates to both legal compliance and compliance with the Company’s internal policies and procedures. This shall not affect payments or benefits that are required to be paid pursuant to the Company’s plans, policies, or agreements; and
2) In determining, setting, or approving termination benefits and/or separation pay to executive officers, the Compensation Committee shall take into consideration the circumstances surrounding the particular executive officer’s departure and the executive’s performance as it relates to both legal compliance and compliance with the Company’s internal policies and procedures. This shall not affect payments or benefits that are required to be paid pursuant to the Company’s plans, policies, or agreements.
(h) EXECUTIVE REPORTS
At least quarterly, the Company’s CFO (or designee) shall provide a written report to the Board regarding the Company’s financial condition and prospects, including, but not limited to, a discussion of all reasons for material increases in expenses and liabilities, if any, and material decreases in revenues and earnings, if any, management plans for ameliorating or reversing such negative trends, and the success or failure of any such plans presented in the past.
All Section 16 officers shall make written reports to the Board regarding their respective areas of responsibility at least quarterly and shall meet at least quarterly with the Board.
(i) EMPLOYEE TRAINING IN RISK ASSESSMENT AND COMPLIANCE
Intrusion shall ensure that its existing training program adheres to the following conditions, to the extent it does not already:
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1) Intrusion’s General Counsel shall be charged with primary responsibility for education pursuant to this provision;
2) Training shall be mandatory for all directors, officers, employees, independent contractors, and agents of Intrusion. Training shall be annual for all such persons, and in the event a person is appointed or hired after the annual training for a particular year, a special training session shall be held for such individual within fourteen (14) business days of their appointment or hiring;
3) Training shall include coverage of risk assessment and compliance, Intrusion’s Code of Conduct, corporate governance guidelines and policies, policies regarding “related party transactions,” and all other manuals or policies established by Intrusion concerning legal or ethical standards of conduct to be observed in connection with work performed for Intrusion (“Intrusion’s Policies”);
4) Training for employees involved in (i) preparing the Company’s financial statements; (ii) communications with the Company’s independent auditor; (iii) data collection, aggregation, analysis, and reporting; and (iv) disseminating or producing the Company’s public statements shall include, but not be limited to, issuing appropriate guidance and the laws and regulations regarding public disclosures; and
5) Training shall be in person where practicable. In the limited circumstances where training in person is not practicable, training should be interactive, Internet-based training. Upon completion of training, the person receiving the training shall provide a written certification as to his or her receipt and understanding of the obligations under Intrusion’s Policies. Each written certification shall be maintained by Intrusion’s General Counsel for a period of ten (10) years from the date it was executed.
(j) DIRECTOR EDUCATION
Intrusion shall suggest that each member of the Board shall annually attend four (4) hours of continuing education programs designed for directors of publicly-traded companies. Such training shall include coverage of rules and regulations regarding public disclosures, standards governing internal controls over financial reporting including those promulgated in the Committee of Sponsoring Organizations of the Treadway Commission Framework, corporate governance, assessment of risk, compliance, auditing, and reporting requirements for publicly-traded corporations.
(k) BOARD COMPOSITION AND PRACTICES
The Board shall adopt the following reforms as they relate to its composition and practices:
1) Board Size. The Company currently has five (5) members on its Board. The Board shall add one (1) additional independent director who shall meet the independence standards set forth herein within one (1) year of the Effective Date of the Settlement;
2) Lead Independent Director. The Board shall include a provision in the Company’s Bylaws that, in the “unusual circumstances as determined by the Board” in which the CEO and Chairman of the Board are the same individual, the Company shall have a lead independent director; and
3) Limitation on Active CEOs. The Board shall adopt a policy of having no more than two (2) directors who are active CEOs at any company, including Intrusion.
(l) DIRECTOR INDEPENDENCE
Intrusion will agree that at least two-thirds of the Board shall consist of directors who meet the criteria for director independence set forth in NASDAQ Listing Rule 5605(a)(2), and any other statutory director independence requirement, as well as the following qualifications:
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1) has no personal services contract(s) with Intrusion or any member of the Company’s senior management;
2) is not employed by a public company at which an executive officer of Intrusion serves as a director, regardless of whether that executive officer serves on the compensation committee of that public company or not;
3) is not affiliated with a non-profit entity that receives significant contributions from Intrusion;
4) has not had any of the relationships described in subsections (1)–(3) above with any affiliate of Intrusion; and
5) is not a member of the immediate family of any person described in subsections (1)–(4) above.
If the Company fails to comply with the independence requirements set forth herein due to one or more vacancies of the Board, Intrusion shall within thirty (30) days regain compliance with these requirements.
(m) WHISTLEBLOWER POLICY
The Company’s Code of Conduct shall provide that Intrusion does not tolerate retaliation against whistleblowers and, to further protect and incentivize employees coming forward with concerns, the Board shall require management to adopt a specific written policy protecting whistleblowers (the “Whistleblower Policy”) that consists of the following and shall include this policy on the Company’s website. The Company’s Whistleblower Policy shall:
1) Encourage interested parties to bring forward ethical and legal violations and/or a reasonable belief that ethical and legal violations have occurred to the Audit Committee, Human Resources, and/or Legal Department so that action may be taken to resolve the problem. These complaints shall be reviewed by the Audit Committee, in consultation with and under the supervision of the Company’s legal counsel, and presented to the full Board; and
2) Effectively communicate that Intrusion is serious about adherence to its corporate governance policies and that whistleblowing is an important tool in achieving this goal.
3) The Whistleblower Policy—with the endorsement of the Board and the most senior management of the Company—must adequately notify employees, independent contractors and vendors of Intrusion of the following:
(i) Executives are subject to criminal penalties, including imprisonment, for retaliation against whistleblowers;
(ii) Whistleblower complaints may be directed to the Audit Committee, Human Resources, and/or the Legal Department, and the complaints will be handled by these parties anonymously and in confidence;
(iii) If a whistleblower brings their complaint to an outside regulator or other governmental entity, they will be protected by the terms of the Whistleblower Policy just as if they directed the complaint to the Audit Committee, Human Resources, and/or Legal Department;
(iv) In the performance review process, employees may be rewarded for top performance and satisfying the stated values, business standards, and ethical standards of the Company; and
(v) It is both illegal and against Intrusion’s policy to discharge, demote, suspend, threaten, intimidate, harass, or in any manner discriminate against whistleblowers.
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The Company shall remind employees of whistleblower options and whistleblower protections in employee communications provided at least once a year.
Intrusion acknowledges that the Action was a precipitating, substantial and material factor in the adoption and implementation of these Measures by Intrusion’s Board, and that the Measures confer substantial benefits upon Intrusion and its current stockholders.
B. RELEASES
2.2. Upon entry of the Judgment, Plaintiff, and each and every other Intrusion stockholder, on behalf of themselves and any other person or entity who could assert any of the Released Plaintiffs’ Claims on their behalf, in such capacity only, shall fully, finally, and forever release, settle, and discharge, and shall forever be enjoined from prosecuting, the Released Plaintiffs’ Claims against Defendants and any other Defendants’ Releasees.
2.3. Upon entry of the Judgment, Defendants and the other Defendants’ Releasees, on behalf of themselves and any other person or entity who could assert any of the Released Defendants’ Claims on their behalf, in such capacity only, shall fully, finally, and forever release, settle, and discharge, and shall forever be enjoined from prosecuting, the Released Defendants’ Claims against Plaintiff’s Releasees. For the avoidance of doubt, notwithstanding anything to the contrary herein, nothing in this Stipulation is intended to release, and nothing herein shall operate as a release of, any (i) rights, claims or actions that Intrusion or any Defendant may have against any insurer or (ii) rights, claims or actions that Intrusion or any of the Defendants may have with respect to any insurance policy implicated by the Action.
C. DISMISSAL OF THE ACTION
2.4. Upon entry of the Judgment, the Action shall be dismissed in its entirety and with prejudice. Plaintiff, Defendants, and Intrusion shall each bear his, her, or its own fees, costs, and expenses, except as expressly provided in this Stipulation, provided that nothing herein shall affect the Defendants’ rights to advancement or indemnity of their legal fees, costs and expenses incurred in connection with the Action and this Settlement, all of which are expressly reserved.
III. PROCEDURE FOR APPROVAL
3.1. As soon as practicable after execution of this Stipulation, the Parties shall jointly submit the Stipulation together with its related documents to the Court, and shall apply to the Court for entry of the Preliminary Approval Order, in the form annexed hereto as Exhibit A, requesting, inter alia: (i) preliminary approval of the Settlement set forth in this Stipulation; (ii) approval of the method of providing notice of the proposed Settlement to current Intrusion stockholders; (iii) approval of the form of Notice attached hereto as Exhibit B; (iv) approval of the form of the Summary Notice attached hereto as Exhibit C; and (v) scheduling dates for the submission of papers in support of the Settlement, the filing of objections to the Settlement, and the Settlement Hearing.
3.2. Within ten (10) business days after the entry of the Preliminary Approval Order, Intrusion shall cause: (i) the posting of the Notice, in the form annexed hereto as Exhibit B, and the Stipulation (including exhibits) on the “Investor Relations” portion of the Company’s website, the address of which will be contained in the Notice and Summary Notice and which posting shall be maintained through the date of the Settlement Hearing; (ii) the filing with the SEC of a Current Report on Form 8-K or other appropriate filing, attaching the Notice (Exhibit B hereto) and the Stipulation (including exhibits); and (iii) the publication of the Summary Notice, in the form annexed hereto as Exhibit C, one time in Investor’s Business Daily. Intrusion shall pay all costs of this notice program, or any other form and manner of notice as may be required by the Court. The Parties agree that the content and manner of notice set forth herein constitutes adequate and reasonable notice to current Intrusion stockholders under applicable law and consistent with due process standards. Before the Settlement Hearing, Defendants’ Counsel shall file with the Court a declaration confirming the effectuation of the notice program as ordered by the Court.
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3.3. The Parties agree to use their individual and collective best efforts to obtain Court approval of this Stipulation. The Parties further agree to use their individual and collective best efforts to effect, take, or cause to be taken all actions, and to do, or cause to be done, all things reasonably necessary, proper, or advisable under applicable laws, regulations, and agreements to consummate and make effective, as promptly as practicable, the Stipulation provided for hereunder and the dismissal of the Action.
3.4. If the Settlement embodied in this Stipulation is approved by the Court, and the Settlement has not been terminated for any reason, the Parties shall request that the Court enter the Judgment, substantially in the form attached hereto as Exhibit D.
IV. ATTORNEYS’ FEES AND EXPENSES
4.1. After reaching an agreement-in-principle regarding the substantive terms of the Settlement, the Parties engaged in separate negotiations regarding the payment of attorneys’ fees and litigation expenses to Plaintiff’s Counsel by Intrusion based on the substantial benefits conferred on the Company and its current stockholders by the Settlement. Based on those benefits, which the Company and the Individual Defendants expressly acknowledge were created by the prosecution and settlement of the Action, Intrusion agrees to pay to Plaintiff’s Counsel, and Plaintiff’s Counsel intend to petition the Court for the approval of, an award of attorneys’ fees and litigation expenses of two hundred and fifty thousand dollars ($250,000.00) (the “Fee and Expense Award”).
4.2. The Fee and Expense Award shall be paid, or cause to be paid, by Intrusion to Plaintiff’s Counsel within ten (10) business days of the Effective Date.
4.3. Plaintiffs’ Counsel has informed Intrusion that they intend to apply to the Court for an award to Plaintiff for the time and effort expended in the prosecution of the Action of up to two thousand dollars ($2,000.00) to be paid from the Fee and Expense Award (the “Plaintiff Service Award”). Defendants take no position on the Plaintiff Service Award.
4.4. If, after payment of the Fee and Expense Award, such award, including any Plaintiff Service Award, is reversed, vacated, or reduced by final non-appealable order, or the Settlement is terminated in accordance with the terms of this Stipulation, Plaintiff’s Counsel shall, within ten (10) business days after receiving from Defendants’ Counsel or from a court of appropriate jurisdiction notice of the termination of the Settlement or notice of any reduction of the Fee and Expense Award by final non-appealable order, return to Intrusion: (i) the full amount of the Fee and Expense Award if the Settlement is terminated or the Fee Award is reversed or vacated, or (ii) if the Fee and Expense Award is reduced, the difference between the attorneys’ fees and expenses awarded by the Court in the Fee and Expense Award on the one hand, and any attorneys’ fees and expenses ultimately and finally awarded on appeal, further proceedings on remand, or otherwise, on the other hand.
4.5. The Fee and Expense Award shall be the sole aggregate compensation for Plaintiff’s Counsel in connection with the Action and the Settlement. Plaintiff’s Counsel shall allocate the attorneys’ fees awarded amongst Plaintiff’s Counsel in a manner which they, in good faith, believe reflects the contributions of such counsel to achieving the benefits of the proposed Settlement. No payment from any attorneys’ fees award shall be made to any counsel not affiliated with Plaintiff’s Counsel. Defendants’ Releasees shall have no responsibility for or liability whatsoever with respect to the allocation or award of attorneys’ fees or expenses to Plaintiff’s Counsel.
4.6. Neither Defendants nor Intrusion shall be liable for or obligated to pay any fees, expenses, costs, or disbursements, or to incur any expense on behalf of, any person or entity (including, without limitation, Plaintiff or Plaintiff’s Counsel), directly or indirectly, in connection with the Action or the Settlement, except as expressly provided for in this Stipulation, provided that nothing herein shall affect the Defendants’ rights to advancement or indemnity for their legal fees, costs and expenses incurred in connection with the Action and this Settlement.
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4.7. Neither Plaintiff nor Plaintiff’s Counsel shall be liable for or obligated to pay any fees, expenses, costs, or disbursements to, or incur any expenses on behalf of, any person or entity (including, without limitation, Defendants, Intrusion, or their counsel), directly or indirectly, in connection with the Action or the Settlement.
4.8. This Stipulation, the Settlement, the Judgment, and whether the Judgment becomes Final are not conditioned upon the approval of an award of attorneys’ fees, costs, or expenses, either at all or in any particular amount, by the Court.
4.9. Plaintiff’s Counsel warrant that no portion of any such award of attorneys’ fees or expenses shall be paid to Plaintiff, except as may be approved by the Court.
V. STAY PENDING COURT APPROVAL
5.1. Pending Court approval of the Stipulation, the Parties agree to stay any and all proceedings in the Action other than those incident to the Settlement.
5.2. Except as necessary to pursue the Settlement and determine a Fee and Expense Award, pending final determination of whether the Stipulation should be approved, all Parties to the Action (including Plaintiff, the Defendants, and Intrusion) agree not to institute, commence, prosecute, continue, or in any way participate in, whether directly or indirectly, representatively, individually, derivatively on behalf of Intrusion, or in any other capacity, any action or other proceeding asserting any Released Claims.
5.3. Notwithstanding Paragraphs 5.1 and 5.2, nothing herein shall in any way impair or restrict the rights of any Party to defend this Stipulation or to otherwise respond in the event any Person objects to the Stipulation, the proposed Judgment to be entered, and/or the Fee and Expense Award or Plaintiff Service Award.
VI. EFFECT OF DISAPPROVAL, CANCELLATION, OR TERMINATION
6.1. Plaintiff, the Individual Defendants (provided they unanimously agree or if only certain Defendants are affected by the occurrence of any event set forth in clauses (b) through (e) below, provided that such Defendants as are affected agree), and Intrusion shall each have the right to terminate the Settlement and this Stipulation by providing written notice of their election to do so (“Termination Notice”) to the other parties to this Stipulation within thirty (30) calendar days of: (a) the Court’s declining to enter the Preliminary Approval Order in any material respect; (b) the Court’s refusal to approve this Stipulation or any part of it that materially affects any party’s rights or obligations hereunder; (c) the Court’s declining to enter the Judgment in any material respect; or (d) the date upon which the Judgment is modified or reversed in any material respect by an appellate court. Neither a modification nor a reversal on appeal of the amount of fees, costs, and expenses awarded by the Court to Plaintiff’s Counsel or of the amount of Plaintiff Service Award (if granted by the Court) shall be deemed a material modification of the Judgment or this Stipulation.
6.2. In the event that the Settlement is terminated pursuant to the terms of Paragraph 6.1 of this Stipulation or the Effective Date otherwise fails to occur for any other reason, then (i) the Settlement and this Stipulation (other than this Section VI ) shall be canceled and terminated; (ii) any judgment entered in the Actions and any related orders entered by the shall in all events be treated as vacated, nunc pro tunc; (iii) the Releases provided under the Settlement shall be null and void; (iv) the fact of the Settlement shall not be admissible in any proceeding before any court or tribunal; (v) all proceedings in the Action shall revert to their status as of the date prior to execution of this Stipulation, and no materials created by or received from another Party that were used in, obtained during, or related to settlement discussions shall be admissible for any purpose in any court or tribunal, or used, absent consent from the disclosing party, for any other purpose or in any other capacity, except to the extent that such materials are required to be produced during discovery in the Action or in any other litigation; (vi) Plaintiff and Defendants shall jointly petition the Court for a revised schedule for trial; (vii) the Parties shall proceed in all respects as if the Settlement and this Stipulation (other than this Section VI) had not been entered into by the Parties; and (ix) the Fee and Expense Award, including the Plaintiff Service Award shall be refunded directly to Intrusion pursuant to the provisions of ⁋ 4.4.
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VII. NO ADMISSION OF LIABILITY
7.1. It is expressly understood and agreed that neither the Settlement nor any act or omission in connection therewith is intended or shall be deemed or argued to be evidence of or to constitute an admission or concession by: (a) the Individual Defendants, Intrusion, or any of the other Defendants’ Releasees as to (i) the truth of any fact alleged by Plaintiff, (ii) the validity of any claims or other issues raised, or which might be or might have been raised, in the Action or in any other litigation, (iii) the deficiency of any defense that has been or could have been asserted in the Action or in any litigation, or (iv) any wrongdoing, fault, or liability of any kind by any of them, which each of them expressly denies; or (b) Plaintiff or any of the other Plaintiff’s Releasees that any of their claims are without merit, that any of the Defendants or Defendants’ Releasees had meritorious defenses, or that damages in the Action would not be recoverable. The Defendants and the Releasees may file this Stipulation and/or Judgment in any action that has been or may be brought against them in order to support a claim or defense based on principles of res judicata, collateral estoppel, release, good faith settlement, judgment bar or reduction, or any other theory of claim preclusion or issue preclusion or similar defense or counterclaim or in connection with any insurance litigation.
VIII. MISCELLANEOUS PROVISIONS
8.1. This Stipulation shall be deemed to have been mutually prepared by the Parties hereto and shall not be construed against any of them by reason of authorship.
8.2. The Parties agree that in the event of any breach of this Stipulation, all of the Parties’ rights and remedies at law, equity, or otherwise, are expressly reserved.
8.3. This Stipulation may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same document. Any signature to the Stipulation by means of facsimile or electronic scanning shall be treated in all manner and respects as an original signature and shall be considered to have the same binding legal effect as if it were the original signed version thereof and without any necessity for delivery of the originally signed signature pages in order for this to constitute a binding agreement.
8.4. The headings herein are used for the purpose of convenience only and are not meant to have legal effect.
8.5. Each counsel or other person executing this Stipulation on behalf of any Party warrants that he or she has the full authority to bind his or her principal to this Stipulation.
8.6. Plaintiff and Plaintiff’s Counsel represent and warrant that none of Plaintiff’s claims referred to in this Stipulation or that could have been alleged in the Action has assigned, encumbered, or in any manner transferred in whole or in part.
8.7. This Stipulation shall not be modified or amended, nor shall any provision of this Stipulation be deemed waived, unless such modification, amendment, or waiver is in writing and executed by or on behalf of the Parties.
8.8. 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 the provisions hereof, 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. Waiver by any Party of any breach of this Stipulation by any other Party shall not be deemed a waiver of any other prior or subsequent breach of this Stipulation, and failure by any Party to assert any claim for breach of this Stipulation shall not be deemed to be a waiver as to that or any other breach and will not preclude any Party from seeking to remedy a breach and enforce the terms of this Stipulation. Each of the Defendants’ respective obligations hereunder are several and not joint, and the breach or default by one Defendant shall not be imputed to, nor shall any Defendant have any liability or responsibility for, the obligations of any other Defendant herein.
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8.9. This Stipulation shall be binding upon, and inure to the benefit of, the successors and assigns of the Parties hereto.
8.10. Notwithstanding the entry of the Judgment, the Court shall retain jurisdiction with respect to the implementation, enforcement, and interpretation of the terms of the Stipulation, and all Parties submit to the jurisdiction of the Court for all matters relating to the administration, enforcement, and consummation of the Settlement and the implementation, enforcement, and interpretation of the Stipulation, including, without limitation, any matters relating to awards of attorneys’ fees and expenses to Plaintiff’s Counsel.
8.11. The construction and interpretation of this Stipulation shall be governed by and construed in accordance with the laws of the State of Delaware and without regard to the laws that might otherwise govern under principles of conflicts of law applicable hereto. Each Party (i) consents to personal jurisdiction in any such action (but no other action) brought in the Court; (ii) consents to service of process by registered mail upon such Party or such Party’s agent; and (iii) waives any objection to venue in the Court and any claim that Delaware or the Court is an inconvenient forum.
8.12 Without further order of the Court, the Parties hereto may agree to reasonable extensions of time to carry out any of the provisions of the Stipulation.
8.13 The following exhibits are annexed hereto and incorporated herein by reference:
(a) Exhibit A: Preliminary Approval Order;
(b) Exhibit B: Notice of Pendency and of Settlement of Action;
(c) Exhibit C: Summary Notice of Pendency and of Settlement of Action; and
(d) Exhibit D: Final Order and Judgment.
IN WITNESS WHEREOF, IT IS HEREBY AGREED by the undersigned as of the date noted above.
Dated September 28, 2023
RIGRODSKY LAW, P.A.
BY: /s/ Herbert Mondros
Seth D. Rigrodsky (#3147)
Gina M. Serra (#5387)
Herbert Mondros (#3308)
300 Delaware Avenue, Suite 210
Wilmington, DE 19801
(302) 295-5310
Email: sdr@rl-legal.com
hwm@rl-legal.com
gms@rl-legal.com
Counsel for Plaintiff Nathan Prawitt
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GRABAR LAW OFFICE
Joshua H. Grabar
One Liberty Place
1650 Market Street, Suite 3600
Philadelphia, PA 19103
Telephone: (267) 507-6085
Email: jgrabar@grabarlaw.com
Of Counsel for Plaintiff Nathan Prawitt
GREENBERG TRAURIG, LLP
/s/ Steven T. Margolin
Steven T. Margolin (No. 3110)
222 Delaware Avenue, Suite 1600
Wilmington, DE 19801
Telephone: (302) 661-7376
David Klaudt
2200 Ross Avenue, Suite 5200
Dallas, Texas 75201
Telephone: (214) 665-3616
Email: David.Klaudt@gtlaw.com
Counsel for Individual Defendant Jack B. Blount
MCCARTER & ENGLISH, LLP
/s/ Andrew Dupre
Andrew Dupre (No. 4261)
Renaissance Centre
405 North King Street, 8th Floor
Wilmington, Delaware 19801
Telephone: (302) 984-6328
Email: adupre@mccarter.com
Counsel for Nominal Defendant Intrusion, Inc. and Individual Defendants Michael L. Paxton, B. Franklin Byrd, P. Joe Head, Gary Davis, James Gero, Anthony Scott, Anthony J. LeVecchio, Katrinka B. McCallum, Jamie M. Schnur, and Gregory K. Wilson
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