EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the
first day of February, 1999, by and among IMAGE SENSING SYSTEMS, INC., a company
incorporated under the laws of the State of Minnesota ("ISS"); MAX RESOURCES
LIMITED, a company incorporated under the laws of Hong Kong (the "Company");
BERKELEY DEVELOPMENT LIMITED, a company incorporated under the laws of the
British Virgin Islands ("BDL"); and MATS JOHAN BILLOW, an individual residing
in Hong Kong ("Billow") (collectively, the "parties").
WHEREAS, the Company proposes to allot and issue six (6) ordinary
shares of the Company (the "Shares"), and ISS desires to subscribe for and
purchase the Shares from the Company, on and subject to the terms and
conditions of this Agreement;
WHEREAS, BDL and Billow are the sole shareholders of the Company, each
owning one (1) ordinary share, and Billow is the sole shareholder of BDL;
WHEREAS, BDL and Billow are willing to make certain representations and
warranties regarding the business of the Company as a material inducement for
ISS to subscribe for and purchase the Shares under this Agreement; and
WHEREAS, concurrent with the execution of this Agreement, ISS, BDL and
Billow have entered into a certain Shareholders' Agreement governing the
ownership and management of the Company and other related issues;
NOW, THEREFORE, in consideration of the premises and the respective
covenants and commitments of the parties set forth herein, the parties hereby
agree as follows:
ARTICLE I
ISSUE AND SUBSCRIPTION OF SHARES
1.1 Issue and Subscription. Upon the terms and subject to the
conditions set forth in this Agreement, the Company shall allot and issue the
Shares to ISS, and ISS shall subscribe for and purchase the Shares from the
Company.
1.2 Purchase Price. In consideration for the Shares, ISS will pay a
total purchase price of US$200,000, or US$33,333 per share, of which US$50,000
shall be payable within three (3) business days after the execution of this
Agreement, and the remaining US$150,000 shall be payable upon the issuance of
the Shares, provided that BDL and Billow have satisfied their obligations under
Section 3.2. Such payments shall be made in cash or by wire transfer to the
Company.
1.3 Further Assurances. Each party shall undertake to the other
parties to procure or execute all such documents and to do or procure to be
done all such other acts and things as may be reasonable and necessary to
complete the allotment and issuance of the Shares to ISS.
1.4 Delivery of Share Certificates. As soon as possible after the
execution of this Agreement and in no event prior to satisfaction by BDL and
Billow of their obligations under Section 3.2, the following transactions shall
occur simultaneously: (a) the Company shall issue duly authorized and executed
stock certificates representing the Shares to ISS, and (b) ISS shall pay the
Company the remaining US$150,000 of the purchase price for the Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Each of the Company, BDL and Billow hereby represent, warrant and
undertake to ISS, jointly and severally, as of the date hereof, and except as
described on the Disclosure Schedule attached hereto as Exhibit A and initialed
by the parties, that each of the following statements is true and accurate to
the best of their knowledge after reasonable investigation (except with respect
to the statements contained in Sections 2.1, 2.2, 2.5 and 2.17, which shall not
be limited to the knowledge of such parties):
2.1 Due Organization. Each of BDL and the Company is duly organized
and validly existing under the laws of the jurisdiction of its organization,
has all requisite authority to carry on its business as now being conducted,
and is qualified to do business in each jurisdiction where the nature of its
activities would require such qualification.
2.2 Authority. BDL and the Company have each taken all action
necessary for the authorization, execution, delivery and performance of this
Agreement, and when accepted by the other parties hereto, this Agreement will
constitute a valid and binding obligation, enforceable against it in accordance
with its terms.
2.3 Corporate Records. The copies of the Memorandum and Articles of
Association of the Company, as previously delivered to ISS, are complete in all
material respects and correct as of the date of this Agreement, and the
statutory books and minute books of the Company, copies of which have been
previously delivered to ISS, are complete and accurately reflect all material
action taken and all meetings held and consents in lieu of meetings obtained
prior to the date of this Agreement by the Company Board of Directors,
committees, if any, and shareholders.
2.4 Shares. The Shares, when issued and paid for pursuant to the
terms of this Agreement, will be duly authorized, validly issued and
outstanding, fully paid, non-assessable and free and clear of all security
interests, claims, liens, preemptive rights or other restrictions or
encumbrances of any kind.
2.5 Authorized Capital of the Company. The capital of the Company is
HK$10,000, divided into 10,000 shares with a nominal value of HK$1.00 each, of
which, as of the date of this Agreement, two (2) shares are issued and
outstanding (not including the Shares to be purchased by ISS hereunder), all of
which are fully paid or credited as fully paid and owned in the manner
described in the preamble to this Agreement. The Company has no other equity
securities or
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securities containing equity features authorized, issued or outstanding. There
are no agreements or other rights or arrangements existing which provide for
the sale or issuance of shares by the Company, and there are no rights,
subscriptions, warrants, options, conversion rights or agreements of any kind
outstanding to purchase or otherwise acquire from the Company any shares or
other securities of the Company of any kind. There are no agreements or other
obligations (contingent or otherwise) which may require the Company to
repurchase or otherwise acquire any of its shares.
2.6 Subsidiaries. The Company does not own any stock, partnership
interest, joint venture interest or any other security or ownership interest
issued by any other corporation, organization or entity.
2.7 Financial Statements. For purposes of this Section 2.7, the
term "Financial Statements" shall mean the unaudited income statements and
balance sheets for the seven-month period ending 31 December, 1998. The Company
has previously provided to ISS copies of the Financial Statements, which have
been prepared in accordance with good accounting practices in Hong Kong,
consistently applied with prior periods, and which comply with all relevant
Statements of Standard Accounting Practice issued by the Hong Kong Society of
Accountants for the time being in force. The Financial Statements accurately
reflect the books and accounts of the Company and present fairly the financial
position of the Company as of the dates indicated and the results of operations
of, and the changes in financial positions for the periods indicated. The
Financial Statements are not affected by any unusual items, and disclose all
liabilities of the Company (whether actual or contingent) in accordance with
good accounting practice in Hong Kong.
2.8 Absence of Undisclosed Liabilities. Except as reflected in the
Financial Statements, the Company has no liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due,
whether known or unknown, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction, or
any state of facts existing, with respect to or based upon transactions or
events heretofore occurring, except (i) liabilities which have arisen after the
date of the Financial Statements in the ordinary course of business (none of
which is a material uninsured liability for breach of contract, breach of
warranty, tort, infringement, claim or lawsuit), or (ii) as otherwise set forth
in the Disclosure Schedule under the caption referencing this Section 2.8.
2.9 Real Properties. The Company neither owns nor leases any real
property other than the properties leased under the lease agreements identified
on the Disclosure Schedule, copies of which have been previously provided to
ISS (the "Leases"). All leasehold properties are held under the Leases, none of
which have been modified or amended. No party to any lease has given it notice
of or made a claim with respect to any breach or default.
2.10 Contracts.
(a) The Disclosure Schedule contains a copy of all contracts of the
Company which (i) involve the expenditure of U.S. $10,000 or more or (ii) have
a term of six months or longer or are not subject to termination on thirty (30)
days' notice ("Material Contracts"). The Company is not
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delayed in the performance of or in default under any of its Material
Contracts, which delay or default would have a material adverse effect on its
business or financial condition. All of its Material Contracts are in full
force and effect and are legal, valid and binding on it and, to the best
knowledge of the Company and Billow, the Company has not knowingly waived any
material right under such Material Contracts, and there has been no material
breach or anticipatory breach by any other party or any dispute or disagreement
between the parties thereto in relation to such Material Contracts. The Company
has no contract bid currently outstanding which, if accepted, will result in
any loss to it.
(b) A complete description of the Company's product warranties is
set forth on the Disclosure Schedule under the caption referencing this Section
2.10. There are no claims outstanding, pending or, to the best knowledge of the
Company or Billow, threatened for breach of any warranty relating to any
products sold by the Company prior to the date hereof.
(c) Except as described on the Disclosure Schedule:
(i) The Company is not a party to any written agreement or
arrangement or under any obligation under which it is or may become
liable to make any investment with, or to deposit any money with, or to
provide any loan or financial accommodation or credit (other than
normal trade credit) to any person, or to subscribe, convert, acquire,
dispose of or underwrite any investment.
(ii) The Company has no liability (present or future) under any
letters of credit, credit sale or conditional sale agreements.
(iii) The Company has no obligation or liability, either accrued,
accruing or contingent, as guarantor, surety, cosigner, endorser,
co-maker or indemnitor in respect of the obligation of any third
party.
(iv) The Company has not entered into any contract, agreement or
commitment which by its terms permits the other party to terminate such
contract, agreement or commitment upon a sale or transfer of or a
change of control over its business.
(v) No agreement restricts the ability of the Company to
conducts its business or compete in any line of business.
2.11 Litigation. The Company has not been or is engaged in or
subject to any litigation, arbitration, prosecution, administration or criminal
or other proceeding or investigation and no litigation, arbitration,
prosecution, administrative, or criminal or other proceeding against or, so far
as the Company and Billow are aware, investigation with respect to its business
is pending, threatened or expected and, so far as the Company and Billow are
aware, there is no fact or circumstance likely to give rise to any litigation,
arbitration, prosecution, administrative or criminal or other proceeding or
investigation or to any proceedings against it.
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2.12 Intellectual Property. The Company has not received any notice
of any infringement, misappropriation or violation by the Company of any
intellectual property rights of any third parties, nor has the Company
infringed, misappropriated or otherwise violated any such intellectual property
rights; and no infringement, illicit copying, misappropriation or violation has
occurred or will occur with respect to products currently being sold by the
Company or with respect to the conduct of the business of the Company as now
conducted.
2.13 Consents. No consent of any third party is required for the
execution, delivery or performance of this Agreement.
2.14 No Conflict. Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions herein contemplated, nor
the fulfillment of or compliance with the terms and conditions hereof will
conflict with the Company's Memorandum and Articles of Association or result in
a breach of or constitute a default under or conflict with any material
contract, agreement or instrument to which the Company, BDL or Billow are a
party or by which the Company, BDL or Billow are bound.
2.15 Compliance with Laws. The Company is operating its business in
compliance with all laws, rules, regulations, codes of practice and orders
applicable to it and has all the permits, licenses or other authorizations
required by federal, state, county, local or foreign governmental agencies for
the conduct of its business. All such permits, licenses and other governmental
authorizations are in full force and effect. The Company is not in violation of
any of the terms or conditions of any such permits, licenses or authorizations.
2.16 Employee Benefits Plans. Except as described on the Disclosure
Schedule, the Company does not maintain or contribute, nor is subject to, any
non-governmental retirement, pension, superannuation allowance, incentive
compensation, deferred compensation, profit-sharing, stock purchase or stock
option plans; multi-employer pension plan; life, health, disability or other
insurance plans; severance or separation plans; or any other employees benefit
plans, practices or arrangements of any kind, whether written or oral, with
respect to all of its employees and former employees and all dependents and
beneficiaries of such employees and former employees.
2.17 Tax Matters.
(a) The Company has: (i) timely filed all returns, declarations,
reports, estimates, information returns and statements ("Returns") required to
be filed or sent by it in respect of any "Taxes" (as defined in subsection (d)
below) or required to be filed or sent by it by any taxing authority having
jurisdiction; (ii) timely and properly paid all Taxes shown to be due and
payable on such Returns; (iii) established on its latest balance sheet, in
accordance with generally accepted accounting principles, reserves that are
adequate for the payment of any Taxes not yet due and payable; and (iv)
complied with all applicable laws, rules, and regulations relating to the
withholding of Taxes and the payment thereof, and timely and properly withheld
from individual employee wages
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and paid over to the proper governmental authorities all amounts required to be
so withheld and paid over under all applicable laws.
(b) There are no liens for Taxes upon any of the assets of the
Company, except liens for Taxes not yet due.
(c) No material deficiency for any Taxes has been proposed, asserted
or assessed against the Company which has not been resolved and paid in full. No
waiver, extension or comparable consent given by the Company regarding the
application of the statute of limitations with respect to any Taxes or Returns
is outstanding, nor is any request for any such waiver or consent pending. There
has been no Tax audit or other administrative proceeding or court proceeding
with regard to any Taxes or Returns, nor is any such Tax audit or other
proceeding pending, nor has there been any notice to it by any Taxing authority
regarding any such Tax, audit or other proceeding, or, to the best of its
knowledge, is any such Tax audit or other proceeding threatened with regard to
any Taxes or Returns. There is no basis for any assessment of any additional
Taxes on the Company and it is not aware of any unresolved questions, claims or
disputes concerning the liability for Taxes on the Company which would exceed
the estimated reserves established on its books and records.
(d) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies, or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, value-added,
transfer, franchise, profits, license, withholding, payroll, employment, social
security, unemployment, excise, estimated, severance, stamp, occupation,
property, or other taxes, customs duties, fees, assessments, or charges of any
kind whatsoever, including, without limitation, all interest and penalties
thereon, and additions to tax or additional amounts imposed by any taxing
authority, domestic or foreign, upon the Company.
2.18 Labor Matters. (a) To the best knowledge of the Company and
Billow, no employee or no group of employees of the Company has any plans to
terminate their employment; (b) the Company has complied with all laws relating
to the employment of labor, including provisions relating to wages, hours,
equal opportunity, collective bargaining and the payment of taxes; (c) the
Company has no material labor relations problems or grievances pending, and the
labor relations are satisfactory; (d) there are no workers' compensation claims
pending against the Company nor is the Company or Billow aware of any facts that
would give rise to such a claim; (e) to the best knowledge of the Company and
Billow, no such employee is subject to any secrecy or non-competition agreement
or any other agreement or restriction of any kind that would impede in any way
the ability of such employee to carry out fully all activities of such employee
in furtherance of its business; and (f) no employee or former employee has any
claim with respect to any intellectual property rights of the Company.
2.19 Officers and Directors; Bank Accounts. The Disclosure Schedule,
under the caption referencing this Section 2.19, lists all officers and
directors of the Company and all of the Company's bank accounts (designating
each authorized signer).
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2.20 Debt. Except for loans in the amount of HK$552,478.76 from BDL
to the Company bearing interest at a rate of 0% annually and payable on demand
(the "Shareholder Loans"), the Company is not a party to nor has any liability
(present or future) under any contract which is a loan agreement, debenture,
guarantee, indemnity or letter of credit or leasing, hiring, hire purchase,
credit sale or conditional sale agreement nor has it entered into any contract
or commitment involving, or likely to involve, obligations or expenditure of an
unusual or exceptional nature or magnitude.
2.21 Bankruptcy; Liquidation. No involuntary proceeding exists or
involuntary petition has been filed in a court of competent jurisdiction or
with any other authority with jurisdiction seeking (i) relief in respect of the
Company under any bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, conservator or similar official
for the Company or for part of its property or assets, or (iii) the winding-up
or liquidation of the Company. There is no unsatisfied judgment outstanding
against the Company and none of its financial obligations is due but unpaid,
except for trade payables in the ordinary course of business and financial
commitments disclosed in the Disclosure Schedule.
2.22 Insurance. The Disclosure Schedule lists and briefly describes
each insurance policy maintained by the Company and sets forth the term and
limits of coverage of each such insurance policy. All of such insurance
policies are in full force and effect and are issued by insurers of recognized
responsibility. The Company is not in default with respect to its obligations
under any of any insurance policies. No claim is outstanding either by the
insurer or the insured under any of such policies and no claim by any third
party is outstanding against the Company in respect of any risk covered by any
of such policies or any prior insurance policies.
2.23 Accuracy and Adequacy of Information. All information contained
in this Agreement and in any other document, certificate, exhibit, statement or
schedule furnished or to be furnished by the Company, BDL or Billow to ISS or
its advisors under this Agreement, or in connection with the transactions
contemplated hereby, is complete and accurate in all material respects, and the
Company and Billow have no knowledge of any fact or matter or circumstances not
disclosed in writing to ISS or its advisors which renders any such information
untrue, inaccurate or misleading in any material respect.
ARTICLE III
AUDIT: SHAREHOLDER LOANS
3.1 New Balance Sheet. As soon as practical after the date of this
Agreement, the Company shall prepare and deliver to ISS a new balance sheet of
the Company as of the date of this Agreement (the "New Balance Sheet"). The
Company, BDL and Billow jointly and severally represent and warrant to ISS that
the New Balance Sheet, when delivered to ISS pursuant to this Section 3.1, will
(a) have been prepared in accordance with good accounting practice in Hong
Kong, consistently applied with prior periods; (b) comply with all relevant
Statements of Standard Accounting Practice issued by the Hong Kong Society of
Accountants for the time being in force; (c) accurately reflect the books and
accounts of the Company; (d) present fairly the financial position
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of the Company as of the dates indicated; and (e) disclose all liabilities of
the Company (whether actual or contingent) in accordance with good accounting
practice in Hong Kong. ISS may, in its sole discretion, conduct an audit of the
New Balance Sheet at ISS's sole expense, in which case the Company, BDL and
Billow shall use their best efforts to cooperate with the audit.
3.2 Forgiveness of Shareholder Loans. If and to the extent that the
New Balance Sheet reveals a negative net worth of the Company, BDL and/or
Billow shall, within thirty (30) days after the date of this Agreement, sign
documentation acceptable to ISS to forgive the outstanding Shareholder Loans in
a sufficient amount to eliminate the deficit.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification by the Company, BDL and Billow. The Company,
BDL and Billow shall jointly and severally indemnify and hold harmless ISS
against any loss, liability or expense (including, but not limited to,
reasonable legal fees and expenses) (collectively, a "Loss"), which ISS may
directly or indirectly incur or suffer by reason of, or which results, arises
out of or is based upon (a) the inaccuracy of any representation or warranty
made by the Company, BDL or Billow in this Agreement, or (b) the failure of the
Company, BDL or Billow to comply with any covenants or other commitments made
any of them in this Agreement.
4.2 Indemnification by ISS. ISS shall indemnify and hold harmless
the Company, BDL and Billow against any Loss which the Company, BDL or Billow
may directly or indirectly incur or suffer by reason of, or which results,
arises out of or is based upon the failure of ISS to comply with any covenants
or other commitments made by ISS in this Agreement.
4.3 Legal Proceedings. In the event any party (the "Indemnified
Party") hereto becomes involved in any legal, governmental or administrative
proceeding which may result in indemnification claims hereunder, the
Indemnified Party shall promptly notify the party from which it is entitled to
indemnification hereunder (the "Indemnifying Party"), in writing and in full
detail, of the filing and of the nature of such proceeding. The Indemnifying
Party may, at its option and expense, defend any such proceeding if the
proceeding could give rise to an indemnification obligation hereunder. If the
Indemnifying Party elects to defend any proceeding, it shall have full control
over the conduct of such proceeding, although the Indemnified Party shall have
the right to retain legal counsel at its own expense and shall have the right
to approve any settlement of any dispute giving rise to such proceeding,
provided that such approval may not be withheld unreasonably by the Indemnified
Party. The Indemnified Party shall reasonably cooperate with the Indemnifying
Party in such proceeding.
4.4 Right of Offset. In the event that a party has a claim for
indemnification against another party pursuant to this Agreement, such party
shall be entitled to offset the amount of such claim against any amounts due
and payable under this Agreement or any other agreement between the relevant
parties. The offset right granted by this Section 4.4 is in addition to a
party's right to
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seek indemnification directly from another party and shall not be deemed to
limit any party's indemnification rights in any respect.
ARTICLE V
MISCELLANEOUS
5.1 Disputes. Disagreements between any parties relating to this
Agreement that cannot be resolved through mutual consultation shall be
submitted to arbitration. The place of arbitration will be the Hong Kong
Special Administrative Region. An independent expert arbitrator shall be
appointed by a unanimous decision of the board of directors of the Company, or,
failing a unanimous decision of the board, by the Hong Kong Chamber of Commerce.
5.2 Governing Law and Construction. The validity, construction and
performance of this Agreement shall be governed by and be interpreted in
accordance with the laws of the Hong Kong Special Administrative Region,
notwithstanding any rules of conflict of laws or private international law under
which any other law would be made applicable.
5.3 Entire Agreement. This Agreement and Exhibit A attached hereto
constitute and express the entire agreement between the parties relating to the
purchase of the Shares by ISS, superseding in all respects any and all prior
oral or written agreements or understandings between them pertaining to the
transactions contemplated by this Agreement, including without limitation the
Letter of Intent dated January 28, 1999 by and among ISS, BDL, Billow, Anthony
H. Gould and Grove Place Limited.
5.4 Amendment. This Agreement may be amended or modified only by a
written instrument executed by all the parties hereto.
5.5 Notices. Any notice or demand provided for hereunder shall be deemed
sufficiently given if sent by telex, telefax (facsimile), internationally
recognized courier or receipted mail (in each case prepaid) to the address
specified in writing by the party to which it is sent and shall be deemed
effective on the date of delivery specified in the telex, telefax (facsimile)
or the courier or mail receipt. Unless and until a party receives written
notice to the contrary from another party, it shall be entitled to consider the
following to be proper addresses of the other parties respectively:
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As to ISS: Image Sensing Systems, Inc.
500 Spruce Tree Centre
1600 University Avenue West
St. Paul, Minnesota 55104-3825
U.S.A.
Attention: President
Telefax No.: 1-651-603-7795
As to the Company, MAX Resources Limited
BDL or Billow: 2001 Central Plaza
18 Harbour Road
Wanchai, Hong Kong
Attention: Mats Johan Billow
Telefax No.: 852-2827-0056
5.6 Waiver. No failure on the part of any party to exercise and no
delay in exercising any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise or any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right or remedy granted hereby or by any related document or at law or in
equity.
5.7 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns; provided, however, that no party shall have the right to assign this
Agreement in whole or in part without the prior written consent of the other
parties hereto, which consent may be granted or withheld in the sole and
absolute discretion of such other parties.
5.8 Severability. Wherever possible, each provision of this
Agreement and each related document shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreements or any related document, shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement or such related documents.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
shall constitute together one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Subscription
Agreement as of the date set forth in the first paragraph.
IMAGE SENSING SYSTEMS, INC MAX RESOURCES LIMITED
By /s/ William L. Russell By /s/ Johan Billow
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William L. Russell Mats Johan Billow
President and Chief Executive Officer President
BERKELEY DEVELOPMENT LIMITED
By /s/ Johan Billow /s/ Johan Billow
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Mats Johan Billow MATS JOHAN BILLOW
President
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