EXHIBIT 2
IMAGE SENSING SYSTEMS, INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
(DIRECTOR)
This Option Agreement, made and entered into this 20th day of September
2002 between Image Sensing Systems, Inc., a Minnesota corporation (the
"Company") and Xxxxx Xxxxxxxxxxxxx ("Director").
WHEREAS, the Company has adopted the Image Sensing Systems, Inc. 1995
Long-Term Incentive and Stock Option Plan (the "Plan") which permits issuance of
stock options for the purchase of shares of common stock of the Company, and the
Company has taken all necessary actions to grant the following option pursuant
and subject to the terms of the Plan.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and Director hereby agree
as follows:
1. Grant of Option. The Company hereby grants Director the right and
option (hereinafter called the "Option") to purchase all or any part of the
aggregate of thirty-six thousand (36,000) shares of the Company's common stock
at the option price equal to $3.10 per share on the terms and conditions set
forth in this agreement and in the Plan. It is understood and agreed that the
option price is the per share fair market value of such shares on September 20,
2002. The Option is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). The option is issued pursuant to the Plan and is subject to its terms.
A copy of the Plan will be furnished upon request of Director.
2. Vesting of Option Rights. Except as otherwise provided in section
3 of this agreement, Director may exercise the Option in accordance with the
following schedule:
On or after each of Number of shares with respect to
the following dates which the Option is exercisable
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December 31, 2002 24,000
December 31, 2003 12,000
Notwithstanding the foregoing, the Option may be exercised as to 100%
of the shares of common stock of the Company for which the Option was granted on
the date of a "change of control", as hereinafter defined. A "change of control"
shall mean any of the following: (i) a public announcement that any person has
acquired or has the right to acquire beneficial ownership of 51 % or more of the
then outstanding shares of common stock of the Company and, for this purpose,
the terms "person" and "beneficial ownership" shall have the meanings provided
in Section 13(d) of the Securities Exchange Act of 1934 or related rules
promulgated by the Securities and Exchange Commission; (ii) the commencement of
or public announcement
of an intention to make a tender or exchange offer for 51% or more of the then
outstanding shares of the common stock of the Company; (iii) a sale of all or
substantially all of the assets of the Company, or (iv) the Board of Directors
of the Company, in its sole and absolute discretion, determines that there has
been a sufficient change in the stock ownership of the Company to constitute a
change in control of the Company.
The Option shall terminate at the close of business on September 20,
2012 or such shorter period as is prescribed herein. Director shall not have any
of the rights of a shareholder with respect to the shares subject to the Option
until such shares shall be issued to Director upon the proper exercise of the
Option.
3. Exercise of Option after Death or Termination of Employment. The
Option shall terminate and may no longer be exercised if director ceases to be
employed (which term, for the purposes of this section 3, shall include status
as a member of the board of directors of the Company) by the Company or its
subsidiaries, except that:
(a) If Director's employment shall be terminated for any
reason, voluntary or involuntary, other than death or disability (as
set forth in section 3(c)) or as a result of Director's gross and
willful misconduct, Director may at any time prior to the close of
business on September 20, 2012 exercise the Option to the extent the
Option was exercisable by Director on the date of the termination of
Director's employment: and
(b) If Director's employment is terminated as a result of
Director's gross and willful misconduct, including but not limited to
wrongful appropriation of funds or the commission of a gross
misdemeanor or felony, the Option shall be terminated as of the date of
the misconduct; and
(c) If Director dies in the employ of the Company or a
subsidiary or Director's employment is terminated because Director has
become disabled (within the meaning of Code section 22(e)(3)) while in
the employ of the Company or a subsidiary, the Option may be exercised
at any time prior to the close of business on September 20, 2012 to the
extent that Director was entitled to exercise the Option on the date of
Director's death or termination of employment, if earlier, by director
or Director's personal representatives, if applicable, or by the person
or persons to whom Director's rights under the Option pass be will or
by the applicable laws of descent and distribution:
provided, however, that the Option may not be exercised to any extent by anyone
after the termination date of the Option.
4. Method of Exercise of Option. Subject to the foregoing, the
Option may be exercised in whole or in part from time to time by serving written
notice of exercise on the Company at its principal office at 500 Spruce Tree
Centre, 0000 Xxxxxxxxxx Xxxxxx, Xx. Xxxx, Xxxxxxxxx 00000. The notice shall set
forth the number of shares as to which the Option is being exercised and shall
be accompanied by payment of the purchase price. Payment of the purchase price
shall be made in cash (including bank check, personal check or money order
payable to the Company), or, at the discretion of the Company, by delivering to
the Company for cancellation shares of the Company's common stock already owned
by Director having a fair market value
equal to the full purchase price of the shares being acquired or a combination
of cash and such shares. The fair market value of any shares delivered by
Director upon the exercise of the Option shall be determined as provided in
section 5 of the Plan.
5. Miscellaneous.
(a) This agreement shall not confer on Director any right with
respect to continuance of employment with the Company or any subsidiary
of the Company, nor will it interfere in any way with the right of the
Company to terminate such employment at any time.
(b) The exercise of all or any parts of the Option shall only
be effective at such time that the sale of shares of common stock
pursuant to such exercise will not violate any state or federal
securities or other laws.
(c) The Option may not be transferred, except by will or the
laws of descent and distribution to the extent provided in subsection
3(c), and during Director's lifetime the Option is exercisable only by
Director.
(d) If there shall be any change in the common stock subject
to the Option through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the
corporate structure of the Company, appropriate adjustments shall be
made by the Company in the number of shares and the price per share of
the shares subject to the Option in order to prevent dilution or
enlargement of the option rights granted hereunder.
(e) The Company shall at all times during the term of the
Option reserve and keep available such number of shares of the
Company's common stock as will be sufficient to satisfy the
requirements of this agreement.
(f) In order to comply with all applicable federal or state
income tax laws or regulation, the Company may take such action as it
deems appropriate to insure that, if necessary, all applicable federal
or state payroll, withholding, income or other taxes are withheld or
collected from Director.
(g) Director shall not disclose either the contents or any of
the terms and conditions of the Option to any other person, except with
the consent of an authorized officer of the Company that is not the
Director or on a confidential basis for personal financial planning,
legal or administrative purposes, and agrees that disclosure in
violation of this Section 5(g) may result in both immediate termination
of the Option without the right to exercise any part thereof and
termination of employment with the Company.
IN WITNESS WHEREOF, the Company and Director have executed this
agreement on the date set forth in the first paragraph.
IMAGE SENSING SYSTEMS, INC.
By /s/ Xxxxx Xxxxxxxx
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Xxxxx Xxxxxxxx
President and Chief
Executive Officer
By /s/ Xxxxx Xxxxxxxxxxxxx
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Director
