EXHIBIT 10.18
UNITED STATES DISTRICT COURT
DISTRICT OF ARIZONA

      IN RE TASER INTERNATIONAL   Lead Case No. 05-0123-PHX-SRB SHAREHOLDER
DERIVATIVE     LITIGATION          
 
          This Document Relates To:   NOTICE OF SETTLEMENT OF     SHAREHOLDER
DERIVATIVE ALL ACTIONS.  
ACTION
     
 
   

NOTICE OF SETTLEMENT HEARING

TO:   ALL RECORD AND/OR BENEFICIAL OWNERS OF TASER INTERNATIONAL, INC. COMMON
STOCK AS OF DECEMBER 4, 2006 (“CURRENT TASER STOCKHOLDERS”):       PLEASE READ
THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. IF YOU ARE A CURRENT TASER
STOCKHOLDER, THE SETTLEMENT OF THE ACTIONS DESCRIBED HEREIN COULD AFFECT YOUR
RIGHTS. THESE ACTIONS ARE NOT “SECURITIES CLASS ACTIONS” AND THERE IS NO
SETTLEMENT FUND ON WHICH TO MAKE A CLAIM.

          THIS NOTICE IS PROVIDED pursuant to an Order of the United States
District Court for the District of Arizona (the “Court”) in the above-captioned
shareholder derivative action. Representative Plaintiffs brought the
above-captioned action and two related state court actions

 

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(collectively, the “Actions”) derivatively on behalf of TASER International,
Inc. (“TASER” or the “Company”).
          The Settling Parties to the Actions have entered into a Stipulation of
Settlement dated December 4, 2006 (the “Stipulation”) which provides for, among
other things, the settlement and dismissal of the Actions (the “Settlement”).
Thus, you are hereby notified, pursuant to Federal Rule of Civil Procedure 23.1
and an Order of the Court, that a final settlement hearing (the “Settlement
Hearing”) will be held in the Actions on March 12, 2007 at 4:00 p.m. at the
United States District Court for District of Arizona, Sandra Day O’Connor United
States Courthouse, which is located at 401 West Washington Street, Phoenix,
Arizona 85003-2118, in the Courtroom of the Honorable Susan R. Bolton to, among
other things: (i) determine the fairness, reasonableness, and adequacy of the
terms and conditions of the Settlement and whether the Court should finally
approve the Settlement and enter an Order and Final Judgment thereon; and
(ii) rule upon the agreed-to fee award for Federal Plaintiffs’ Lead Counsel in
the Actions. Even though you are receiving this Notice, the Court has not
expressed any opinion as to the merits of any claim or defense that has been or
may be asserted in the Actions.
THE FOLLOWING RECITATION DOES NOT CONSTITUTE FINDINGS OF THE COURT. IT IS BASED
ON THE STATEMENTS OF THE SETTLING PARTIES AND SHOULD NOT BE UNDERSTOOD AS AN
EXPRESSION OF ANY OPINION OF THE COURT AS TO THE MERITS OF ANY OF THE CLAIMS OR
DEFENSES RAISED BY ANY OF THE SETTLING PARTIES.

I.   BACKGROUND

          On January 11, 2005, Representative Plaintiffs in the Federal Action
instituted litigation on behalf of TASER against the Individual Defendants in
the United States District Court for the District of Arizona.
          On February 9, 2005, the Court in this “Federal Action” consolidated
several derivative actions as In re TASER International Shareholder Derivative
Litigation, Case No. 05-123-PHX-SRB and appointed the Federal Plaintiffs’ Lead
Counsel.

 

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          On May 13, 2005, after their investigation, plaintiffs in the Federal
Action filed their Federal Complaint alleging on behalf of TASER claims against
the Individual Defendants for breach of fiduciary duty, abuse of control, gross
mismanagement, waste of corporate assets and unjust enrichment based on
allegations that the Individual Defendants, among other things, with knowing or
extreme recklessness issued, or caused TASER to issue, a series of improper and
misleading statements regarding: (a) the Company’s then-current operating
condition and its future prospects; and (b) the safety record of the Company’s
weapons; that the Individual Defendants’ acts and failures to act had the effect
of creating unwarranted market optimism, which in turn caused the price of the
Company’s common stock to be artificially inflated throughout the Relevant
Period; that certain of TASER’s officers and directors took advantage of the
Company’s artificially inflated stock price by selling over 1.7 million shares
of their personally-held stock for proceeds exceeding $88 million; and that the
foregoing conduct caused TASER to suffer damages.
          On August 19, 2005, TASER and the Individual Defendants moved to
dismiss the Federal Complaint, which was then fully briefed by all parties in
the Federal Action, and on March 17, 2006, the Court denied the motions of both
TASER and the Individual Defendants.
          The following events occurred in the Arizona State Court Action:
(i) on January 12, 2005, plaintiffs initiated litigation in the Arizona Superior
Court for Maricopa County on behalf of TASER against certain of the Individual
Defendants; (ii) on May 3, 2005, the Court entered an order consolidating
related actions as In re TASER International, Inc. Shareholder Derivative
Litigation, Case No. CV 2005-684; (iii) on April 5, 2005, plaintiffs filed a
Verified Consolidated Derivative Complaint on behalf of TASER against certain of
the Individual Defendants claiming breach of fiduciary duty and unjust
enrichment based on allegations substantially similar to the allegations of the
Federal Complaint; and (iv) on July 25, 2005, the Court issued an order in part
staying further litigation of the Arizona State Court Action pending resolution
of the Federal Action.

 

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          The following events occurred in the Delaware State Court Action:
(i) on January 13, 2005, plaintiffs initiated litigation in the Court of
Chancery of the State of Delaware for New Castle County, by filing a Derivative
Complaint captioned Rosenberg v. Smith, et al., Case No. 1000-N, on behalf of
TASER against certain of the Individual Defendants claiming breach of fiduciary
duty based on substantially similar allegations as alleged in the Federal
Complaint, and (ii) on September 13, 2005, the Court issued an order staying
further litigation of the Delaware State Court Action.
          The Individual Defendants have denied and continued to deny all the
claims and allegations against them in the Actions, TASER has asserted and
continues to assert that the Representative Plaintiffs in the Actions do not
have standing to bring such claims against the Individual Defendants on behalf
of TASER and that Representative Plaintiffs’ failure to make a pre-litigation
demand on TASER’s Board of Directors is not excused.
          In and around April 2006, the parties in the Federal Action began
private settlement discussions, resulting in a mediation session on July 25,
2006 before the Hon. Layn R. Phillips (ret.), with whose assistance the parties
were able to reach the terms of settlement set forth in the Stipulation.
          In August 2006, Representative Plaintiffs in the State Court Actions,
through their counsel, confirmed to Federal Plaintiffs’ Lead Counsel and counsel
for Defendants that the Representative Plaintiffs in the State Court Actions
intend to dismiss their respective actions as part of and in conjunction with
the settlement and dismissal of the Federal Action.

II.   THE SETTLING PARTIES’ POSITIONS REGARDING THE DESIRABILITY OF THE
SETTLEMENT

          The Individual Defendants expressly have denied and continue to deny
each and all of the allegations and claims alleged in the Actions. The
Individual Defendants expressly have denied and continue to deny all charges of
wrongdoing or liability against them, arising out of any of the conduct,
statements, acts or omissions alleged, or that could have been alleged in the

 

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Actions. The Individual Defendants also have denied and continue to deny, inter
alia, the allegations that Representative Plaintiffs or TASER or its
stockholders were harmed by the conduct alleged in the Actions. The Individual
Defendants further have denied and continue to deny that they are liable to
TASER for any claims, causes of action, costs, expenses, attorneys’ fees or
damages of any kind. The Individual Defendants have further asserted that, at
all relevant times, they acted in good faith and in a manner they reasonably
believed to be in the best interests of TASER and TASER’s stockholders.
          TASER has denied and continues to deny that Representative Plaintiffs
have standing to assert the claims in their respective Actions against the
Individual Defendants. TASER has asserted and continues to assert that
Representative Plaintiffs’ failure to make a pre-litigation demand on TASER’s
Board is not excused.
          Nonetheless, TASER and Individual Defendants have concluded that
further litigation of the Actions would be protracted and expensive, and that it
is desirable that the Actions be fully and finally settled in the manner and
upon the terms and conditions set forth in this Stipulation. TASER and
Individual Defendants also have taken into account the uncertainty and risks
inherent in any litigation and, therefore, determined that it is desirable and
beneficial that the Actions be settled in the manner and upon the terms and
conditions set forth in the Stipulation.
          Federal Plaintiffs’ Lead Counsel asserts that they have conducted
extensive discovery and investigation during the development and prosecution of
the Federal Action. This discovery and investigation has included, inter alia;
(i) inspecting, reviewing and analyzing thousands of pages of documents produced
by, or otherwise relating to, TASER; (ii) consulting with corporate governance
experts; (iii) participating in numerous face-to-face and telephonic meetings
with TASER’S counsel, and some of the Individual Defendants identified herein;
(vi) participating in formal mediation with a highly experienced mediator
retained to assist resolving the Federal Action; and (v) researching the
applicable law with respect to the claims asserted in the Federal Action and the
potential defenses thereto.

 

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          Representative Plaintiffs and All Plaintiffs’ Counsel believe that the
claims asserted in the Actions have merit. They recognize and acknowledge,
however, the extraordinary expense and length of continued proceedings necessary
to prosecute the Actions against the Individual Defendants on TASER’S behalf
through trial and, potentially, through appeals. They also recognize the
inherent risks of an uncertain outcome, especially in complex litigation such as
the Actions, as well as the difficulties and delays of such litigation. Taking
these risks, uncertainties and expenses into consideration, Representative
Plaintiffs and All Plaintiffs’ Counsel believe that the Settlement set forth in
the Stipulation confers substantial benefits upon TASER. Based on their
evaluation, Representative Plaintiffs and All Plaintiffs’ Counsel have
determined that the Settlement set forth in the Stipulation is in the best
interests of Representative Plaintiffs, TASER and TASER’s stockholders.

III.   THE TERMS OF THE PROPOSED SETTLEMENT

          As a result of the filing, prosecution and settlement negotiations
leading to the Stipulation, Defendants and their insurance carrier have resolved
claims under the effective insurance policy so that the insurance carrier has
agreed to make available to TASER $4.8 million of its $5.0 million insurance
policy for defense and/or settlement of pending securities claims, to release
any right to seek repayment of the $4.8 million, and to remit to TASER
$4.8 million less certain defense costs paid to date.
          As a result of the filing, prosecution and settlement negotiations
leading to the Stipulation, the Company will adopt the following corporate
changes or provisions: (1) appointment of a lead outside director to be chosen
from among the recently appointed independent directors whose duties will
include among other responsibilities chairing executive sessions of the Board,
serving as the principal liaison between the non-employee directors and members
of senior management, representing the Board in meetings with investors, and
working with the Chairperson to finalize information flow to the Board, meeting
agendas and meeting schedules; (2) review and as appropriate revise the
Company’s formal

 

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insider trading policy; and (3) has contracted its internal audit function to an
independent third party until the first to occur of (i) such time that TASER no
longer is required to comply with the provisions of Section 404 of the
Sarbanes-Oxley Act of 2002, (ii) TASER employs an internal audit manager, or
(iii) there is a “change of control” of TASER defined as the closing of a
merger, reorganization, consolidation or other transaction or related series of
transactions as a result of which the stockholders of TASER prior to such
transaction do not hold at least a majority of the voting stock of the acquiring
or successor corporation or its parent company.
          As a result, in part, of the filing, prosecution and settlement
negotiations leading to this Stipulation, the Company has added two (2) new
independent directors to the Board.
          The Settling Parties believe that the foregoing corporate changes or
provisions have benefited and will continue to materially benefit TASER and
Current TASER Stockholders.

IV.   SETTLEMENT HEARING AND APPROVAL

          On March 12, 2007 at 4:00 p.m. the Court will hold a Settlement
Hearing at the United States District Court for District of Arizona, Sandra Day
O’Connor United States Courthouse, before the Hon. Susan Bolton to consider the
approval of the Settlement on the terms set forth above.
PLEASE TAKE NOTE: YOUR RIGHTS MAY BE AFFECTED
          If the Court approves the Settlement and enters the Final Judgment and
Order of Dismissal with Prejudice, upon the Effective Date, Representative
Plaintiffs, and All Plaintiffs’ Counsel on their own behalf and derivative on
behalf of TASER, and Current TASER Stockholders (in their capacity as
stockholders only) shall fully, finally and forever relinquish and discharge all
Released Claims (including “Unknown Claims”) against each an all of the Released
Persons. Each of the Representative Plaintiffs, All Plaintiffs’ Counsel, and the
Current TASER Stockholders may hereafter discover facts in addition to or
different from those which he or she now knows or believes to be true with
respect to the subject matter of the Released Claims, but they stipulate and
agree that the Representative Plaintiffs, All Plaintiffs’ Counsel,

 

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and each Current TASER Stockholder shall be deemed to, upon the Effective Date,
fully, finally, and forever settle and release any and all Released Claims,
which now exist, or heretofore have existed upon any theory of law or equity,
including, but not limited to, conduct which is negligent, intentional, with or
without malice, or a breach of any duty, law or rule, without regard to the
subsequent discovery or existence of such different or additional facts.

V.   ATTORNEYS’ FEES AND REIMBURSEMENT OF EXPENSES

          TASER, on behalf of all Defendants, has agreed, upon approval by the
Court, that for Federal Plaintiffs’ Lead Counsel’s efforts in filing,
prosecuting and settling the Action, TASER shall pay to Federal Plaintiffs’ Lead
Counsel attorneys’ fees and reimbursement of expenses in the amount of
$1,750,000.00 (the “Fee Award”).
          The Fee Award shall be paid to Federal Plaintiffs’ Lead Counsel in the
form of TASER common stock no later than ten (10) business days after the
Effective Date (the “Payment Date”). Payment shall be made in a certain number
of TASER common shares equal to the Fee Award (“the Base Number”). The Base
Number shall be calculated based on the average of the closing prices of TASER
common stock during the period of thirty (30) calendar days after the date the
Court in the Federal Action enters Judgment (the “Base Number Price”). The Fee
Award shall be calculated as the number of TASER common shares equal to
$1,750,000.00 divided by the Base Number Price.
          The Fee Award will also be subject to a collar provision for the
benefit of Federal Plaintiffs’ Lead Counsel or TASER. The “Collar Price” shall
be the average of the closing prices of TASER common stock during the period of
thirty (30) calendar days preceding the five (5) business days before the
Payment Date. The collar provision provided in this paragraph becomes effective
only if either 1) the Base Number Price is greater than one hundred ten percent
(110%) of the Collar Price, or 2) the Base Number Price is less than ninety
percent (90%) of the Collar Price. If the collar provision does not become
effective, then the Fee Award is determined pursuant to the preceding paragraph.
If the collar provision becomes effective,

 

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then the Fee Award shall be the number of TASER common shares equal to
$1,750,000.00 divided by the Collar Price.
          The Fee Award is also subject to other modifications in the event that
there is a change of control of TASER, as set forth in Paragraph 9.6 of the
Stipulation.
          The Fee Award includes fees and expenses incurred by All Plaintiffs’
Counsel in connection with the prosecution and settlement of the Actions. To
date, All Plaintiffs’ Counsel have not received any fees, nor have they been
reimbursed for their out of pocket expenses. The Fee Award would compensate All
Plaintiffs’ Counsel for the results achieved in the Actions, and risks of
undertaking the prosecution of the Actions on a contingent basis.
          Any stock distributed as part of the Settlement shall be issued
pursuant to Section 3(a)(10) of the Securities Act of 1933, and shall not be
constituted “restricted securities.” In the event that the stock cannot be
issued pursuant to Section 3(a)(10), TASER shall take such steps as are
necessary to permit such issuance or, in lieu thereof, shall file a registration
statement covering the issuance of such stock or seek a “no action” letter from
the Securities and Exchange Commission covering such issuance. Furthermore, in
the event that such stock cannot be issued pursuant to Section 3(a)(10) and
TASER files a registration statement with respect to the shares as contemplated
by the preceding sentence, TASER agrees that during the initial period that any
such stock is not otherwise freely tradable and transferable under Rule 144(k)
or otherwise, TASER will, at its sole cost, keep a registration statement
relating to such TASER common stock effective under the Securities Act of 1933.
          Defendants and their respective Related Parties shall have no
responsibility for, and no liability whatsoever with respect to, the fee
allocation among All Plaintiffs’ Counsel, and any other Person who may assert
some claim thereto, of any portion of the Fees and Expenses.

VI.   YOUR RIGHT TO BE HEARD AT THE HEARING

          Any Current TASER Stockholder may (but is not required to) appear and
show cause, if he, she or it has any reason why the Settlement of the Actions
embodied in the Stipulation should

 

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not be approved as fair, reasonable and adequate, or why a judgment should or
should not be entered thereon, or why fees inclusive of expenses should not be
awarded as agreed upon by the Settling Parties; provided however, that no
Current TASER Stockholder or any other Person, shall be heard or entitled to
contest the approval of the Settlement, or, if approved, the Judgment to be
entered thereon, unless on or before ten business (10) days prior to the
Settlement Hearing that Person has caused to be filed written objections,
stating all supporting bases and reasons, with:
CLERK OF THE COURT
United States District Court for the District of Arizona
Phoenix Division
Sandra Day O’Connor U.S. Courthouse,
401 West Washington Street, Suite 130, SPC1
Phoenix, Arizona 85003-2118
and has served copies of all such papers at the same time upon the following by
first-class mail:

     
Robert B. Weiser, Esq.
  Keith E. Eggleton, Esq.
The Weiser Law Firm, P.C.
  Wilson Sonsini Goodrich & Rosati, LLP
121 N. Wayne Ave., Suite 100
  650 Page Mill Road
Wayne, PA 19087
  Palo Alto, CA 94304-1050
Federal Plaintiffs’ Lead Counsel
  Individual Defendants’ Counsel
 
   
 
  Holly L. Gibeaut
 
  TASER International, Inc.
 
  17800 N. 85th St.
 
  Scottsdale, AZ 85255-9603
 
  TASER’s Counsel

          Attendance at the Settlement Hearing is not necessary in order for the
objection to be considered by the Court; however, Persons wishing to be heard
orally in opposition to the approval of the Settlement are required to indicate
in their written objection their intention to appear at the hearing. Thus, every
written objection filed with the Court and mailed to the attorneys listed above
must contain: (1) the name, address and telephone number of the Person objecting
to the Settlement; (2) the number of shares of TASER common stock said Person
owns; (3) the date(s) of purchase of such shares, and a statement as to whether
the Person will own such shares as of the date of the Settlement Hearing; (4) a
detailed statement of the basis for the Person’s objections to or comments upon
the Settlement, All Plaintiffs’ Counsel’s request

 

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for approval of the Fee Award, or any other matter before the Court; (5) any
supporting papers, including all documents and writings that the Person desires
the Court to consider; (6) a representation as to whether the Person intends to
appear at the Settlement Hearing; (7) a representation as to whether the Person
plans on calling any witness[es] at the Settlement Hearing; and (8) the
identities of any witnesses the Person plans to call at the Settlement Hearing.
          Any Current TASER Stockholder who does not make his, her or its
objection in the manner provided in the preceding paragraph of this Order shall
be deemed to have waived such objection and shall forever be foreclosed from
making any objections to the fairness, adequacy, or reasonableness of the
Settlement, or the Fee Award.

VII.   SCOPE OF THIS NOTICE

          The foregoing descriptions of the Actions, the Settlement Hearing, the
proceedings to be held, the activities leading to the Settlement, the terms of
the Settlement, the conditions of Settlement, and other matters described herein
do not purport to be all inclusive. Accordingly, you are referred to the
Stipulation and other pleadings filed with the Clerk of the Court, which may be
examined during regular business hours at the offices of the Clerk of the Court
at United States District Court for the District of Arizona, Phoenix Division,
Sandra Day O’Connor U.S. Courthouse, 401 West Washington Street, Suite 130,
SPC1, Phoenix, Arizona 85003-2118.

VIII.   QUESTIONS REGARDING THE PROPOSED SETTLEMENT

          If you have questions regarding the Settlement, this Notice, or the
history of the Actions, please do not call or write the Court or the Company.
Questions may be directed to:
Robert B. Weiser, Esq.
The Weiser Law Firm, P.C.
121 N. Wayne Ave., Suite 100
Wayne, PA 19087
(866) 934-7372
Federal Plaintiffs’ Lead Counsel