EXHIBIT 10.16
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 Xxxx Xxxxx Xxxxxx, 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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