EXHIBIT 10.17
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE NOTE UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
$125,000 JANUARY 7, 2002
IMAGE SENSING SYSTEMS, INC.
NON-INTEREST BEARING CONVERTIBLE NOTE
FOR VALUE RECEIVED, Image Sensing Systems, Inc., a Minnesota
corporation (the "Company"), promises to pay to Xxxxxxx X. Xxxxx, or
his assigns (the "Holder"), the principal sum of One Hundred
Twenty-Five Thousand Dollars ($125,000) as set forth below.
1. PRINCIPAL AND INTEREST. No interest shall accrue on the principal
balance of this Note. If not sooner converted or paid as provided below, the
entire balance of principal shall be due and payable on January 7, 2007 (the
"Maturity Date").
2. CONVERSION. The Holder, at his option, may convert this Note, in
whole but not in part, at any time, up to and including the Maturity Date, upon
10 days' advance written notice to the Company, into 50,000 shares of Company
common stock, $.01 par value per share (the "Common Stock"), which number of
shares shall be adjusted appropriately in the event of a stock split, stock
dividend, reclassification, recapitalization, or similar event. Within 10 days
after the conversion of this Note, the Company at its expense will issue and
deliver to the Holder, upon surrender of this Note to the Company, a certificate
or certificates for the number of full shares of equity securities issuable upon
such conversion.
3. REGISTRATION RIGHTS. If requested by the Holder, the Company shall
register under the Securities Act of 1933, as amended, the resale of the shares
of Common Stock issuable upon conversion of the Note, in accordance with the
terms and conditions set forth on Appendix A attached hereto.
4. NO VOTING RIGHTS. The Note shall not entitle the Holder to any
voting rights or any other rights as a shareholder of the Company or to any
other rights whatsoever except the rights stated herein, and no dividend or
interest shall be payable or shall accrue in respect of Common Stock, until this
Note shall be converted.
5. PAYMENT. All payments of principal shall be in lawful money of the
United States of America and shall be made by check or telegraphic transfer
delivered to the Holder at the address or account designation furnished to the
Company for that purpose. The Company
may prepay this Note, upon 10 days' advance written notice to the Holder, (i) at
any time during calendar year 2002, for the face amount and without penalty or
additional fees, or (ii) at any time after April 1, 2003, for the face amount
plus $25,000. The Holder may, upon 10 days' advance written notice to the
Company, demand payment of this Note at any time after April 1, 2003, for the
face amount and without penalty or additional fees. Within 10 days of delivery
of such notice by the Holder or by the Company pursuant to this Section 5, the
Company will pay the Holder the full face amount of $125,000, or, in the case of
prepayment by the Company after April 1, 2003, the face amount plus $25,000.
6. DEFAULT. If any of the events specified in this Section 6 shall
occur (each, an "Event of Default"), the Holder may, so long a such condition
exists, declare the entire principal amount and unpaid accrued interest hereon
immediately due and payable, by notice in writing to the Company:
(a) Failure to Pay Debts; Voluntary Bankruptcy. If the Company
fails to pay its debts generally as they become due, or if the Company
files any petition, proceeding, case or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law, rule,
regulation, statute or ordinance (collectively, "Laws and Rules"), or
any other Law and Rule for the relief of, or related to, debtors.
(b) Involuntary Bankruptcy. If any involuntary petition is
filed under any bankruptcy or similar Law or Rule against the Company,
or a receiver, trustee, liquidator, assignee, custodian, sequestrator
or other similar official is appointed to take possession of any of the
assets or properties of the Company or any Guarantor.
(c) Governmental Action. If any governmental or regulatory
authority takes or institutes any action that will materially affect
the Company's financial condition, operations or ability to pay or
perform the Company's obligations under this Note.
(d) Other Breach or Defaults. If the Company breaches, or
defaults in any material respect under, any material term, condition,
provision, representation, warranty or covenant contained in this Note
that is not specifically referred to in this Section 6.
7. WAIVER. The Company hereby waives demand, notice, presentment,
protest and notice of dishonor.
8. MISCELLANEOUS. The terms of this Note shall be construed in
accordance with the laws of the State of Minnesota as applied to contracts
entered into by Minnesota residents within the State of Minnesota, which
contracts are to be performed entirely within the State of Minnesota.
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IN WITNESS WHEREOF, the Company has executed this Note as of the date
set forth above.
IMAGE SENSING SYSTEMS, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Chairman and Chief Executive
Officer
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APPENDIX A
REGISTRATION RIGHTS
1. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT.
1.1 REGISTRATION PROCEDURES AND EXPENSES. THE COMPANY SHALL:
(a) within 10 days of the conversion of the Note pursuant to
Section 2 thereof, commence the preparation of a registration statement
on Form S-3 (the "REGISTRATION STATEMENT") to enable the resale of the
Common Stock by the Holder from time to time through the Nasdaq Stock
Market or in privately negotiated transactions; and, subject to receipt
of necessary information from the Holder, file the Registration
Statement with the Securities and Exchange Commission ("SEC") as soon
thereafter as practicable;
(b) use its best efforts, subject to receipt of necessary
information from the Holder, to cause the Registration Statement to
become effective as soon as practicable;
(c) use its best efforts to prepare and file with the SEC such
amendments and supplements to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement current and effective for a period not exceeding
the earlier of (i) the second anniversary of the date on which this
Note is converted pursuant to Section 2, (ii) the date on which the
Holder may sell all Shares then held by the Holder without restriction
by the volume limitations of Rule 144(e) of the Securities Act or (iii)
such time as all shares of the Common Stock have been sold pursuant to
a registration statement, and to notify the Holder promptly upon the
Registration Statement and each post-effective amendment thereto being
declared effective by the SEC;
(d) furnish to the Holder such number of copies of the
Registration Statement, Prospectuses (including supplemental
prospectuses) and preliminary versions of the Prospectus filed with the
SEC ("PRELIMINARY PROSPECTUSES") in conformity with the requirements of
the Securities Act of 1933 and such other documents as the Holder may
reasonably request, in order to facilitate the public sale or other
disposition of all or any of the shares of the Common Stock by the
Holder; provided, however, that unless waived by the Company in
writing, the obligation of the Company to deliver copies of
Prospectuses or Preliminary Prospectuses to the Holder shall be subject
to the receipt by the Company of reasonable assurances from the Holder
that the Holder will comply with the applicable provisions of the
Securities Act and of such other securities or blue sky laws as may be
applicable in connection with any use of such Prospectuses or
Preliminary Prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in all states requiring blue sky clearance; provided,
however, that the Company shall not be required to qualify to do
business or consent to service of process in any jurisdiction in which
it is not now so qualified or has not so consented;
(f) bear all expenses (other than underwriting discounts and
commissions, if any) in connection with the procedures in paragraph (a)
through (e) of this Section 1.1
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(including reasonable fees and expenses of one counsel for Holder) and
the registration of the Common Stock pursuant to the Registration
Statement; and
(g) advise the Holder, promptly after it shall receive notice
or obtain knowledge of the issuance of any stop order by the SEC
delaying or suspending the effectiveness of the Registration Statement
or of the initiation of any proceeding for that purpose; and it will
promptly use its commercially reasonable efforts to prevent the
issuance of any stop order or to obtain its withdrawal at the earliest
possible moment if such stop order should be issued.
With a view to making available to the Holder the benefits of
Rule 144 (or its successor rule) and any other rule or regulation of
the SEC that may at any time permit the Holder to sell shares of the
Common Stock to the public without registration, the Company covenants
and agrees to: (i) make and keep public information available, as those
terms are understood and defined in Rule 144, until the earlier of (A)
such date as all of the Holder's shares of Common Stock may be resold
pursuant to Rule 144(k) or any other rule of similar effect or (B) such
date as all of the Holder's shares of Common Stock shall have been
resold; (ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and under
the Exchange Act; and (iii) furnish to the Holder upon request, as long
as the Holder owns any shares of Common Stock, (A) a written statement
by the Company that it has complied with the reporting requirements of
the Securities Act and the Exchange Act, (B) a copy of the Company's
most recent Annual Report on Form 10-KSB or Quarterly Report on Form
10-QSB, and (C) such other information as may be reasonably requested
in order to avail the Holder of any rule or regulation of the SEC that
permits the selling of any such shares of Common Stock without
registration.
It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1.1 that the Holder
shall furnish to the Company such information regarding itself, the
shares of Common Stock to be sold by the Holder, and the intended
method of disposition of such securities as shall be required to effect
the registration of the Common Stock.
1.2 TRANSFER OF SHARES AFTER REGISTRATION; SUSPENSION.
(a) The Holder agrees that it will not effect any disposition
of the Note or the Common Stock issuable upon conversion of the Note
that would constitute a sale within the meaning of the Securities Act
other than transactions exempt from the registration requirements of
the Securities Act, except as contemplated in the Registration
Statement referred to in Section 1.1 and as described below, and that
it will promptly notify the Company of any changes in the information
set forth in the Registration Statement regarding the Holder or its
plan of distribution.
(b) Except in the event that paragraph (c) below applies, the
Company shall: (i) if deemed necessary by the Company, prepare and file
from time to time with the SEC a post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or a
supplement or amendment to any document incorporated therein by
reference or file any other required document so that such Registration
Statement will not
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contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and so that, as thereafter delivered
to purchasers of the Common Stock being sold thereunder, such
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and (ii) provide the Holder
copies of any documents filed pursuant to Section 1.2(b)(i).
(c) Subject to paragraph (d) below, in the event: (i) of any
request by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for
amendments or supplements to a Registration Statement or related
Prospectus or for additional information; (ii) of the issuance by the
SEC or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the shares of
Common Stock for sale in any jurisdiction or the initiation of any
proceeding for such purpose; or (iv) of any event or circumstance which
necessitates the making of any changes in the Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated
therein by reference, so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or any omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of
a material fact or any omission to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
then the Company shall promptly deliver a certificate in writing to the
Holder (the "SUSPENSION NOTICE") to the effect of the foregoing and,
upon receipt of such Suspension Notice, the Holder will refrain from
selling any Common Stock pursuant to the Registration Statement (a
"SUSPENSION") until the Holder's receipt of copies of a supplemented or
amended Prospectus prepared and filed by the Company, or until it is
advised in writing by the Company that the current Prospectus may be
used, and has received copies of any additional or supplemental filings
that are incorporated or deemed incorporated by reference in any such
Prospectus. In the event of any Suspension, the Company will use its
reasonable best efforts to cause the use of the Prospectus so suspended
to be resumed as soon as reasonably practicable after delivery of a
Suspension Notice to the Investors.
(d) Notwithstanding the foregoing paragraphs of this Section
1.2, the Company shall use its best efforts to ensure that the Holder
shall not be prohibited from selling Common Stock under the
Registration Statement as a result of Suspensions on more than two
occasions of not more than 30 days each in any twelve month period.
(e) Provided that a Suspension is not then in effect, the
Holder may sell shares of Common Stock under the Registration
Statement, provided that it arranges for delivery of a current
Prospectus to the transferee of such shares of Common Stock. Upon
receipt of a request therefor, the Company will provide an adequate
number of current Prospectuses to the Holder and to any other parties
requiring such Prospectuses. In the event of a sale of shares of Common
Stock by the Holder, unless such requirement is waived by the Company
in writing, the Holder must also deliver to the Company's transfer
agent, with a copy to the Company, such information as may be required
by the transfer agent so that the shares may be properly transferred.
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