Document:

Exhibit 10.6

 

ANNUAL GRANT

 

INTRUSION INC.

 

NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR

AUTOMATIC STOCK OPTION

 

Notice is hereby given of the following option grant (the “Option”) to
purchase shares of the Common Stock of Intrusion Inc. (the “Corporation”):

 

	
  OPTIONEE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GRANT DATE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GRANT
  NUMBER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  NUMBER OF
  OPTION SHARES:

  	
   

  	
  5,000 shares
  of common stock

  
	
   

  	
   

  	
   

  
	
  EXERCISE
  PRICE:

  	
   

  	
  $                           per
  share

  
	
   

  	
   

  	
   

  
	
  EXPIRATION
  DATE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  TYPE OF
  OPTION:

  	
   

  	
  Non-Statutory
  Stock Option

  
	
   

  	
   

  	
   

  
	
  EXERCISE
  SCHEDULE:

  	
   

  	
  The Option
  shall vest and become exercisable for one-third of the Option Shares upon
  Optionee’s completion of each year of service as a member of the Corporation’s
  Board of Directors (the “Board”) over the three-year period measured from the
  Grant Date. In no event shall the Option become exercisable for any
  additional Option Shares after Optionee’s cessation of Board service.

  

 

Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the automatic option grant program under
the Intrusion Inc. 2005 Stock Incentive Plan (the “Plan”).  Optionee further agrees to be bound by the
terms of the Plan and the terms of the Option as set forth in the Automatic
Stock Option Agreement attached hereto as EXHIBIT A.  Optionee hereby acknowledges receipt of a
copy of the official prospectus for the Plan in the form attached hereto as EXHIBIT B.  A copy of the Plan is available upon request
made to the Corporate Secretary at the Corporation’s principal offices.

 

NO IMPAIRMENT OF RIGHTS.  Nothing
in this Notice or the attached Automatic Stock Option Agreement or in the Plan
shall interfere with or otherwise restrict in any way the

 

 

rights of the Corporation and the Corporation’s
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.

 

DEFINITIONS.  All capitalized
terms in this Notice shall have the meaning assigned to them in this Notice or
in the attached Automatic Stock Option Agreement.

 

	
  DATED:____________ ,_____

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INTRUSION
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  OPTIONEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
								

 

ATTACHMENTS

EXHIBIT A – AUTOMATIC STOCK OPTION AGREEMENT

EXHIBIT B - PLAN SUMMARY AND PROSPECTUS

 

2Exhibit 10.7

 

INTRUSION INC.

 

AUTOMATIC STOCK OPTION AGREEMENT

 

RECITALS

 

A.                                   The
Corporation has implemented an automatic option grant program under the Plan
pursuant to which eligible non-employee members of the Board will automatically
receive special option grants at periodic intervals over their period of Board
service in order to provide such individuals with a meaningful incentive to
continue to serve as members of the Board.

 

B.                                     Optionee
is an eligible non-employee Board member, and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the automatic grant of an option to purchase shares of Common
Stock under the Plan.

 

C.                                     All
capitalized terms in this Agreement shall have the meaning assigned to them in
the attached Appendix.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.                                       GRANT OF OPTION. 
The Corporation hereby grants to Optionee, as of the Grant Date, a
Non-Statutory Option to purchase up to the number of Option Shares specified in
the Grant Notice.  The Option Shares
shall be purchasable from time to time during the option term specified in
Paragraph 2 at the Exercise Price.

 

2.                                       OPTION TERM. 
This option shall have a term of ten (10) years measured from the
Grant Date and shall accordingly expire at the close of business on the
Expiration Date, unless sooner terminated in accordance with Paragraph 5, 6 or
7.

 

3.                                       LIMITED TRANSFERABILITY.

 

(a)                                  This
option may be assigned in whole or in part during Optionee’s lifetime to one or
more members of Optionee’s family or to a trust established for the exclusive
benefit of one or more such family members or to Optionee’s former spouse, to
the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to a domestic relations order. 
The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such
assignment.  The terms applicable to the
assigned portion shall be the same as those in effect for this option
immediately prior to such assignment.

 

(b)                                 Should
the Optionee die while holding this option, then this option shall be
transferred in accordance with Optionee’s will or the laws of inheritance.  However, Optionee may designate one or more
persons as the beneficiary or beneficiaries of this
option, and this option shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee’s death while holding

 

 

this option.  Such beneficiary or beneficiaries shall take
the transferred option subject to all the terms and conditions of this
Agreement, including (without limitation) the limited time period during which
this option may, pursuant to Paragraph 5, be exercised following Optionee’s
death.

 

4.                                       EXERCISABILITY/VESTING.  This option shall become vested and
exercisable for the Option Shares in one or more installments as specified in
the Grant Notice.  As the option becomes
exercisable for such installments, those installments shall accumulate, and the
option shall remain exercisable for the accumulated installments until the
Expiration Date or sooner termination of the option term under Paragraph 5, 6
or 7.  The Option Shares shall, however,
be subject to accelerated vesting pursuant to the provisions of Paragraph 5, 6
or 7, but in no event shall any additional Option Shares vest following
Optionee’s cessation of service as a Board member.

 

5.                                       CESSATION OF BOARD SERVICE.  Should Optionee’s service as a Board member
cease while this option remains outstanding, then the option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date in accordance with the following provisions:

 

(a)                                  Should
Optionee cease to serve as a Board member for any reason while this option is
outstanding, then the period during which this option may be exercised shall be
reduced to a one-year period measured from the date of such cessation of Board
service, but in no event shall this option be exercisable at any time after the
Expiration Date.  During such limited
period of exercisability, Optionee (or the person or persons to whom this
option is transferred pursuant to a permitted transfer under Paragraph 3) may
not exercise this option in the aggregate for more than the number of Option
Shares (if any) in which Optionee is vested on the date of his or her cessation
of Board service.  Upon the earlier of (i) the expiration of such
one-year period or (ii) the specified Expiration Date, the option shall
terminate and cease to be exercisable with respect to any vested Option Shares
for which the option has not been exercised.

 

(b)                                 Should
Optionee cease service as a Board member by reason of death or Permanent
Disability, then any Option Shares at the time subject to this option but not
otherwise vested shall vest in full so that this option may be exercised for
any or all of the Option Shares as fully vested shares of Common Stock at any
time prior to the earlier of (i) the
expiration of the one-year period measured from the date of Optionee’s
cessation of Board service or (ii) the specified Expiration Date,
whereupon this option shall terminate and cease to be outstanding.

 

(c)                                  Upon
Optionee’s cessation of Board service for any reason other than death or
Permanent Disability, this option shall immediately terminate and cease to be
outstanding with respect to any and all Option Shares in which Optionee is not
otherwise at that time vested in accordance with the normal Vesting Schedule or
the special vesting acceleration provisions of Paragraphs 6 and 7 below.

 

2

 

6.                                       CHANGE IN CONTROL.

 

(a)                                  In
the event of a Change in Control effected during Optionee’s period of Board
service, any Option Shares at the time subject to this option but not otherwise
vested shall automatically vest so that this option shall, immediately prior to
the specified effective date for that Change in Control, become exercisable for
all of the Option Shares as fully vested shares of Common Stock and may be exercised
for any or all of those vested shares. 
Immediately following the consummation of the Change in Control, this
option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation or its parent company or otherwise
continued in effect pursuant to the terms of the Change in Control transaction.

 

(b)                                 If
this option is assumed in connection with a Change in Control or otherwise
continued in effect, then this option shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities which would have been issuable to Optionee in consummation of such
Change in Control had the option been exercised immediately prior to such
Change in Control, and appropriate adjustments shall also be made to the
Exercise Price, provided the
aggregate Exercise Price shall remain the same. 
To the extent the actual holders of the Corporation’s outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the
Change in Control transaction, the successor corporation may, in connection
with the assumption of this option, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration paid
per share of Common Stock in such Change in Control transaction.

 

7.                                       PROXY CONTEST. 
In the event a Proxy Contest occurs during Optionee’s period of Board
service, any Option Shares at the time subject to this option but not otherwise
vested shall automatically vest so that this option shall, immediately upon the
consummation of the Proxy Contest, become exercisable for all of the Option
Shares as fully vested shares of Common Stock and may be exercised for any or
all of those vested shares.  This option
shall remain exercisable for such fully vested Option Shares until the earlier to occur of (i) the specified
Expiration Date, and (ii) the sooner termination of this option in
accordance with Paragraph 5 or 6.

 

8.                                       ADJUSTMENT IN OPTION SHARES.  Should any change be made to the Common Stock
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation’s receipt of consideration,
appropriate adjustments shall be made to (i) the total number and/or class
of securities subject to this option and (ii) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.

 

9.                                       STOCKHOLDER RIGHTS.  The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.

 

3

 

10.                                 MANNER OF EXERCISING OPTION.

 

(a)                                  In
order to exercise this option with respect to all or any part of the Option
Shares for which this option is at the time exercisable, Optionee (or any other
person or persons exercising the option) must take the following actions:

 

(i)                                     To
the extent the option is exercised for vested Option Shares, execute and
deliver to the Corporation a Notice of Exercise (see attached form) for the
Option Shares for which the option is exercised.  To the extent this option is exercised for
unvested Option Shares, execute and deliver to the Corporation a Purchase
Agreement for those unvested Option Shares.

 

(ii)                                  Pay
the aggregate Exercise Price for the purchased shares in one or more of the
following forms:

 

(A)                              cash
or check made payable to the Corporation (includes cash paid from Optionee’s
brokerage pursuant to a presale of shares in a so-called “cashless” exercise),

 

(B)                                shares
of Common Stock held by Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge to the Corporation’s
earnings for financial reporting purposes and valued at Fair Market Value on
the Exercise Date, or

 

(C)                                to
the extent the option is exercised for vested Option Shares, through a special
sale and remittance procedure pursuant to which Optionee (or any other person
or persons exercising the option) shall concurrently provide irrevocable
instructions (I) to a brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable income and
employment taxes required to be withheld by the Corporation by reason of such
exercise and (II) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale.

 

Payment forms (B), and (C) above shall be accepted solely at the
option of the Plan Administrator.

 

(iii)                               Furnish
to the Corporation appropriate documentation that the person or persons
exercising the option (if other than Optionee) have the right to exercise this
option.

 

(b)                                 Except
to the extent the sale and remittance procedure is utilized in connection with
the option exercise, payment of the Exercise Price must accompany the Notice of
Exercise (or the Purchase Agreement) delivered to the Corporation in connection
with the option exercise.

 

4

 

(c)                                  As
soon after the Exercise Date as practical, the Corporation shall issue to or on
behalf of Optionee (or any other person or persons exercising this option) a
certificate for the purchased Option Shares, with the appropriate legends
affixed thereto.  To the extent any such
Option Shares are unvested, the certificates for those Option Shares shall be
endorsed with an appropriate legend evidencing the Corporation’s repurchase
rights and may be held in escrow with the Corporation until such shares vest.

 

(d)                                 In
no event may this option be exercised for any fractional shares.

 

11.                                 NO IMPAIRMENT OF RIGHTS.  This Agreement shall not in any way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.  In addition, this Agreement
shall not in any way be construed or interpreted so as to affect adversely or
otherwise impair the right of the Corporation or the stockholders to remove
Optionee from the Board at any time in accordance with the provisions of
applicable law.

 

12.                                 COMPLIANCE WITH LAWS AND REGULATIONS.

 

(a)                                  The
exercise of this option and the issuance of the Option Shares upon such
exercise shall be subject to compliance by the Corporation and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange or quotation system on which the Common Stock
may be listed for trading at the time of such exercise and issuance.

 

(b)                                 The
inability of the Corporation to obtain approval from any regulatory body having
authority deemed by the Corporation to be necessary to the lawful issuance and
sale of any Common Stock pursuant to this option shall relieve the Corporation
of any liability with respect to the non-issuance or sale of the Common Stock
as to which such approval shall not have been obtained.  The Corporation, however, shall use its best
efforts to obtain all such approvals.

 

13.                                 SUCCESSORS AND ASSIGNS.  Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee’s assigns, the legal representatives, heirs and legatees of
Optionee’s estate and any beneficiaries of this option designated by Optionee.

 

14.                                 NOTICES. 
Any notice required to be given or delivered to the Corporation under
the terms of this Agreement shall be in writing and addressed to the
Corporation at its principal corporate offices. 
Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee’s
signature line on the Grant Notice.  All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.

 

5

 

15.                                 CONSTRUCTION. 
This Agreement and the option evidenced hereby are made and granted
pursuant to the Plan and are in all respects limited by and subject to the
terms of the Plan.

 

16.                                 GOVERNING LAW. 
The interpretation, performance and enforcement of this Agreement shall
be governed by the laws of the State of Texas without resort to that State’s
conflict-of-laws rules.

 

6

 

EXHIBIT I

 

NOTICE OF EXERCISE

 

I hereby notify Intrusion Inc. (the “Corporation”) that I elect to
purchase                          
shares of the Corporation’s Common Stock (the “Purchased Shares”) at the option
exercise price of $
                
 per share (the “Exercise Price”)
pursuant to that certain option (the “Option”) granted to me under the Corporation’s
2005 Stock Incentive Plan on                             
,                
..

 

Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise.  Alternatively, I may
utilize the special broker-dealer sale and remittance procedure specified in my
agreement to effect payment of the Exercise Price for any Purchased Shares in
which I am vested at the time of exercise of the Option.

 

	
  _____________,
  _____

  	
   

  
	
  Date

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Optionee:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Print name
  in exact manner it is to

  appear on the stock certificate:

  	
   

  
	
   

  	
   

  
	
  Address to
  which certificate is to

  be sent, if different from address above:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Social
  Security Number:

  	
   

  
				

 

 

 

APPENDIX

 

The following definitions shall be in effect under the Agreement:

 

A.                                   “Agreement” shall mean
this Automatic Stock Option Agreement.

 

B.                                     “Board” shall mean the
Corporation’s Board of Directors.

 

C.                                     “Change in Control”
shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

 

(i)                                     a
merger, consolidation or other reorganization approved by the Corporation’s
stockholders, unless securities
representing more than 50% of the total combined voting power of the voting
securities of the successor corporation are immediately thereafter beneficially
owned, directly or indirectly, by the persons who beneficially owned the
Corporation’s outstanding voting securities immediately prior to such
transaction;

 

(ii)                                  the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets; or

 

(iii)                               the
acquisition, directly or indirectly, by any person or related group of persons
(other than the Corporation or a person that directly or indirectly controls,
is controlled by, or is under common control with, the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of securities possessing more than 50% of the total combined voting power
of the Corporation’s outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation’s stockholders.

 

D.                                    “Common Stock” shall
mean shares of the Corporation’s common stock, par value $0.01 per share.

 

E.                                      “Code” shall mean the
Internal Revenue Code of 1986, as amended.

 

F.                                      “Corporation” shall
mean Intrusion Inc., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of Intrusion Inc. which has by appropriate action assumed the Plan.

 

G.                                     “Exercise Date” shall
mean the date on which the option shall have been exercised in accordance with
Paragraph 10 of the Agreement.

 

H.                                    “Exercise Price” shall
mean the exercise price per share as specified in the Grant Notice.

 

I.                                         “Expiration Date”
shall mean 5:00 p.m. Central Time on the date on which the option expires
as specified in the Grant Notice.

 

 

J.                                        “Fair Market Value”
per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:

 

(i)                                     If
the Common Stock is at the time traded on the Nasdaq Stock Market, then the
Fair Market Value shall be the closing selling price per share of Common Stock
on the date in question, as such price is reported by the National Association
of Securities Dealers on the Nasdaq Stock Market and published in The Wall Street Journal.  If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.

 

(ii)                                  If
the Common Stock is at the time listed on any stock exchange, then the Fair
Market Value shall be the closing selling price per share of Common Stock on
the date in question on the stock exchange which serves as the primary market
for the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange and published in The Wall Street Journal. 
If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.

 

(iii)                               If
the Common Stock is at the time neither listed on any stock exchange or the
Nasdaq Stock Market, then the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan Administrator
shall deem appropriate.

 

K.                                    “Grant Date” shall
mean the date of grant of the option as specified in the Grant Notice.

 

L.                                      “Grant Notice” shall
mean the Notice of Grant of Automatic Stock Option accompanying the Agreement,
pursuant to which Optionee has been informed of the basic terms of the option
evidenced hereby.

 

M.                                 “Non-Statutory Option”
shall mean an option not intended to satisfy the requirements of Code Section 422.

 

N.                                    “Notice Of
Exercise” shall mean the notice of exercise in the form of Exhibit I.

 

O.                                    “Option Shares” shall
mean the number of shares of Common Stock subject to the option.

 

P.                                      “Optionee” shall mean
the person to whom the option is granted as specified in the Grant Notice.

 

Q.                                    “Permanent Disability”
shall mean the inability of Optionee to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which is expected to result in death or has lasted or can be expected to last for
a continuous period of twelve (12) months or more.

 

R.                                     “Plan” shall mean the
Corporation’s 2005 Stock Incentive Plan.

 

 

S.                                      “Proxy Contest” shall
mean a change in ownership or control of the Corporation effected through a
change in the composition of the Board over a period of thirty-six consecutive
months or less such that a majority of the Board members ceases, by reason of
one or more contested elections for Board membership, to be comprised of
individuals who either (a) have been Board members continuously since the
beginning of such period or (b) have been elected or nominated for
election as Board members during such period by at least a majority of the
Board members described in clause (a) who were still in office at the time
the Board approved such election or nomination.

 

T.                                     “Purchase Agreement”
shall mean the stock purchase agreement (in form and substance satisfactory to
the Corporation) which grants the Corporation the right to repurchase, at the
Exercise Price, any and all unvested Option Shares held by Optionee at the time
of Optionee’s cessation of Board service and which precludes the sale, transfer
or other disposition of any purchased Option Shares while those shares are
unvested and subject to such repurchase right.

 

U.                                    “Vesting Schedule”
shall mean the vesting schedule specified in the Grant Notice, pursuant to
which the Option Shares will vest in one or more installments over the Optionee’s
period of Board service, subject to acceleration in accordance with the
provisions of the Agreement.

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