Item
1.01. Entry into a Material Definitive Agreement.
Definitive Settlement Agreements Executed in Settlement of Class and Derivative Action
Litigation
Background
– Class Action
As previously
disclosed, on April 29, May 27 and June 23, 2020, a series of securities class action cases were filed in the United States District Court
for the Southern District of New York against Company and the Company’s former CEO. These three class actions were consolidated
on September 18, 2020 and Daniel Yannes was designated lead plaintiff. A consolidated Amended Complaint was filed on October
19, 2020. The consolidated action was captioned Daniel Yannes, individually and on behalf of all others similarly situated, Plaintiff
(“Plaintiff”) vs. SCWorx Corp. and Marc S. Schessel (“Schessel”), Defendants.
On December 20, 2021, the Company
and Mr. Schessel entered into a binding agreement with the Plaintiff to settle the litigation. This agreement was subject to negotiation
and execution of a definitive settlement agreement.
Final Settlement Agreement – Class Action
On February 11, 2022, the Company
and Mr. Schessel (“Defendants”) entered into a definitive settlement agreement with the Plaintiff, which settles all claims
raised in the litigation (“Class Action Settlement” or “Settlement”). As stated on December 20, 2021, and under
the terms of the Class Action Settlement, (i) the insurers for the Company and Schessel will make a cash payment to the Plaintiff and
(ii) the Company will issue $600,000 worth of common stock to the class Plaintiffs, in exchange for which all parties will be released
from all claims related to the securities class action litigation. Once the Company issues the $600,000 worth of stock, the Company believes
it will have satisfied its obligations with respect to the payment of the $750,000 accrued retention liability applicable to its D&O
insurance policy. This Class Action Settlement has been submitted to the court for preliminary approval.
Subject to the approval of the
Court and the terms and conditions expressly provided within the Class action Settlement , such Settlement fully, finally and forever
compromise, settle, release, resolve and dismiss with prejudice all claims asserted in the Class Action against Defendants. Neither the
Class Action Settlement nor any of the terms thereof constitute an admission or finding of any fault, liability, wrongdoing, or damages
whatsoever or any infirmity in the defenses that Defendants have, or could have, asserted. Defendants have determined that it is desirable
and beneficial to them that the Action be settled in the manner and upon the terms and conditions set forth in the Settlement. The Company’s
decision to settle the Class Action was based on the conclusion that further litigation would be protracted and expensive, with the uncertainty
and risks inherent in any litigation and the determination that it is desirable and beneficial to settle the Class Action in the manner
and upon the terms and conditions set forth in this Settlement and to put the released claims to rest finally and forever, without in
any way acknowledging any wrongdoing, fault, liability or damages to lead plaintiff or the Class Action settlement class.
Background – Derivative Action
As previously
disclosed, on June 15, August 21, and September 30, 2020, a series of shareholder derivative cases were filed against us (as nominal defendant)
and certain of our directors (Marc S. Schessel, Charles K. Miller, Steven Wallitt and Robert Christie (the “Director Defendants”))
in the United States District Court for the Southern District of New York, New York State Supreme Court and the Chancery Court in Delaware.
On December 24, 2021, the Company
and the Director Defendants entered into a binding agreement with the shareholder derivative plaintiffs to settle the derivative litigation.
This agreement was subject to negotiation and execution of a definitive settlement agreement.
Settlement Agreement – Derivative
Action
On February 15, 2022, the Company
and the Director Defendants executed a definitive settlement Agreement (the “Derivative Settlement”). Under the terms of the
Derivative Settlement, (i) the insurers for the Director Defendants will make a cash payment to legal counsel for the shareholder derivative
Plaintiffs to cover their legal fees and (ii) the Company will adopt certain corporate governance reforms within 60 days of court approval
of the settlement, in exchange for which all parties will be released from all claims related to the derivative class action litigation.
This Derivative Settlement, subject to court approval, is intended to fully, finally, and forever resolve, discharge, and settle all released
claims upon the terms and subject to the conditions set forth therein. The Director Defendants have denied and continue to deny each and
every claim and contention alleged by Plaintiffs in the Derivative Actions. The Individual Defendants have expressly 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 Derivative Actions. Nonetheless, Defendants have concluded that it is desirable for the Derivative
Actions to be fully and finally settled in the matter and upon the terms and conditions set forth in the Derivative Settlement.