SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
IMAGE SENSING SYSTEMS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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IMAGE SENSING SYSTEMS, INC.
500 Spruce Tree Centre
1600 University Avenue West
St. Paul, Minnesota 55104
(651) 603-7700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, AUGUST 7, 2002
TO THE SHAREHOLDERS OF IMAGE SENSING SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Image
Sensing Systems, Inc. will be held at 3:30 p.m. Central Time on Thursday, August
7, 2002, at the Science Museum of Minnesota, 120 West Kellogg Boulevard, St.
Paul, Minnesota, for the following purposes:
(1) To elect five directors to serve on the Board of Directors.
(2) To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on July 9, 2002
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting.
We encourage you to take part in the affairs of your company either in
person or by executing and returning the enclosed proxy card as promptly as
possible. To ensure that your shares are represented, we request that you sign
and return your proxy card whether or not you intend to be at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ James Murdakes
James Murdakes
Chairman of the Board, Chief Executive Officer,
President and Secretary
Dated: July 12, 2002
WE URGE YOU TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY
MAIL IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
IMAGE SENSING SYSTEMS, INC.
500 Spruce Tree Centre
1600 University Avenue West
St. Paul, Minnesota 55104
(651) 603-7700
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, AUGUST 7, 2002
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Image Sensing Systems, Inc.
for use at our annual meeting of shareholders to be held Thursday, August 7,
2002, at 3:30 p.m., Central Time, at the Science Museum of Minnesota, 120 West
Kellogg Boulevard, St. Paul, Minnesota and at any adjournment thereof. This
proxy statement and the accompanying form of proxy are being sent or given to
shareholders beginning on or about July 12, 2002, along with our 2001 Annual
Report to Shareholders. We will pay all expenses in connection with the
solicitation of proxies. In addition to solicitation by mail, our officers,
directors and regular employees, who will receive no extra compensation for
their services, may solicit proxies by telephone, facsimile or personal calls.
Only shareholders of record at the close of business on July 9, 2002
are entitled to notice of and to vote at the meeting or at any adjournment
thereof. On July 9, 2002, there were 3,152,777 shares of our common stock
outstanding. Each share is entitled to one vote. Cumulative voting is not
permitted.
The affirmative vote of the majority of shares represented at the
meeting, in person or by proxy, is required for the election of each nominee to
the Board of Directors. You may either vote "FOR" or "WITHHOLD" authority to
vote for each nominee for the Board of Directors. The Board of Directors
recommends a vote "FOR" each nominee. Shares represented by a proxy will be
voted in the manner directed by a shareholder. If no direction is made, the
proxy will be voted "FOR" the election of each nominee named in this proxy
statement. If you submit your proxy but withhold authority to vote, your shares
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the meeting, and your shares will be
counted as unvoted for purposes of determining the approval of the nominee as to
whom you have withheld authority. Withholding your authority to vote for one or
more of the director nominees has the same effect as a vote against those
nominees. If a broker submits a proxy that indicates the broker does not have
discretionary authority as to certain shares to vote on one or more matters (a
broker "non-vote"), those shares will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting, but will not be considered as present and entitled to vote with respect
to such matters.
You may revoke your proxy at any time before the proxy vote is cast at
the annual meeting by giving written notice of revocation to Arthur J.
Bourgeois, Chief Financial Officer of the Company, by submitting a later-dated
proxy or by voting in person at the meeting.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of July 9, 2002, by: (a) each person
or entity known by us to own beneficially more than five percent of our common
stock; (b) each director and nominee for election as a director of Image Sensing
Systems; (c) each of our executive officers named in the Summary Compensation
Table set forth under the caption "Executive Compensation" below; and (d) all of
our directors and executive officers as a group.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes generally voting power and/or
investment power with respect to securities. Shares of common stock issuable
pursuant to stock options and convertible securities that are exercisable or
convertible currently or within 60 days of the date of this proxy statement are
deemed outstanding for computing the beneficial ownership percentage of the
person holding the options but are not deemed outstanding for computing the
beneficial ownership percentage of any other person. Except as indicated by
footnote, the persons named in the table above have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. The address of each director and executive officer named below is the same
as that of Image Sensing Systems.
COMMON STOCK PERCENT OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OUTSTANDING
------------------------------------------------------------ ------------------------- -------------------------
Betty P. Papapanou 738,208(1) 23.0%
2483 Albert St N
Roseville, MN 55113
Brown Brothers Harriman & Co. 327,600 10.4%
59 Wall Street
NewYork, NY 10005
Mats Johan Billow 56,000(2)(3) 1.7%
Arthur J. Bourgeois -- --
Richard P. Braun 140,134(3)(4) 4.4%
Michael G. Eleftheriou -- --
Richard C. Magnuson 98,338(3)(5) 3.1%
Panos G. Michalopoulos 1,482,777(1)(3)(6) 45.3%
James Murdakes 71,526(3) 2.2%
All directors and executive officers as a group (7 persons) 1,848,775(3) 53.9%
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(1) Includes 681,208 shares of common stock held by Ms. Papapanou and
57,000 shares issuable pursuant to options exercisable within 60 days
after the date of this proxy statement. In accordance with an agreement
between Ms. Papapanou and Dr. Michalopoulos, Ms. Papapanou will vote
all such shares consistent with the recommendations of the majority of
our Board of Directors, unless Dr. Michalopoulos agrees in writing that
she need not so vote with respect to a specific proposal.
(2) Includes 6,000 shares held by Berkeley Development Limited, a company
controlled by Mr. Billow.
(3) Includes shares issuable pursuant to options exercisable currently or
within 60 days of this proxy statement and, for Mr. Billow, a currently
convertible note: for Mr. Billow, 50,000 shares; for Mr. Braun, 36,000
shares; for Mr. Magnuson, 12,000 shares; for Dr. Michalopoulos, 120,000
shares; for Mr. Murdakes, 62,000 shares; for all directors and
executive officers as a group, 280,000 shares.
(4) Includes 78,000 shares held indirectly through a trust of which Mr.
Braun is a trustee and as to which shares Mr. Braun has sole voting and
investment power.
(5) Includes 39,852 shares held by Operating Management, Inc., a
corporation controlled by Mr. Magnuson.
(6) Includes 360 shares held by Dr. Michalopoulos' son, as to which Dr.
Michalopoulos disclaims beneficial ownership.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than 10% of our
common stock to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater-than-10% beneficial owners are required by SEC regulations
to furnish us with copies of all Section 16(a) reports they file. Based solely
on a review of the copies of such forms furnished to us during 2001 and written
representations from the executive officers, directors and greater-than-10%
beneficial owners of our common stock, we believe that all of our executive
officers, directors and greater-than-10% shareholders complied with all Section
16(a) filing requirements applicable to them.
ITEM I. ELECTION OF DIRECTORS
The business and affairs of Image Sensing Systems are managed under the
direction of our Board of Directors, which presently is comprised of six
members. Each of our directors is elected until the next annual meeting of
shareholders and until the director's successor has been elected and qualifies
to serve as a director. The Board of Directors has nominated and recommends that
you vote FOR the five nominees named below for election as directors. All of the
nominees presently are members of the Board of Directors. Mr. Billow, who
currently serves as a director, is not standing for reelection.
Unless otherwise specified, the named proxies intend to vote FOR the
election of the five nominees listed below. If for any reason any nominee shall
be unavailable for election to the Board of Directors, the named proxies will
vote for such other candidate or candidates as may be nominated by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees will be unable to serve.
The nominees for election to our Board of Directors provided the
following information about themselves.
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RICHARD P. BRAUN, age 76, director since 1994. Mr. Braun served as Director of
the Center for Transportation Studies at the University of Minnesota from 1987
to 1994. From September 1993 to February 1995, Mr. Braun also served as Chairman
of the State of Minnesota's Metropolitan Airports Commission, and he was
Commissioner of Transportation for the State of Minnesota from 1979 to 1987. He
retired from full-time employment in 1994. Mr. Braun is chairman of the
compensation and stock option committee.
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MICHAEL G. ELEFTHERIOU, age 57, director since April 2002. Since July 2001, Mr.
Eleftheriou has served as President and Chief Executive Officer of Creative
Publishing international, a Minneapolis-based publisher of how-to books, and a
premier publisher of nature, photography and wildlife books for children and
adults. Prior to joining Creative Publishing international, Mr. Eleftheriou
worked for more than 30 years in the information technology industry. From 1968
to 1997, he held various positions in engineering, software, product
development, sales, marketing and general and administrative management at
Control Data Corporation and Control Data Systems, Inc., a provider of computing
and systems integration services that was spun off from Control Data Corporation
in 1992. Mr. Eleftheriou served as Vice President, Systems Integration Services
at Control Data Systems from 1997 to 1998, and as President, Systems Integration
Services at Control Data Systems and its successor company Syntegra U.S.A., the
global consulting and systems integration arm of British Telecommunications plc,
from 1998 to November 2000. From November 2000 to July 2001, Mr. Eleftheriou
provided executive consulting services to providers of web-based media. Mr.
Eleftheriou is a member of the audit committee.
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RICHARD C. MAGNUSON, age 60, director since 1990. Since 1997, Mr. Magnuson has
served as Chairman and Chief Financial Officer of BioMedix, Inc., a medical
device company. From 1995 to 1997 he operated his own management consulting
firm, Operating Management, Inc. Mr. Magnuson served as President and Chief
Executive Officer of Image Sensing Systems from 1991 to 1995 and as Vice
President and Secretary during 1995. From 1988 to 1990, Mr. Magnuson worked with
Image Sensing Systems as a private consultant. Mr. Magnuson is chairman of the
audit committee.
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PANOS G. MICHALOPOULOS, age 54, director since 1984. Dr. Michalopoulos was
Chairman of the Board of Image Sensing Systems from our inception in 1984
through 1999, and served as Chief Scientific Advisor from 1995 through 2000.
Since 1977, Dr. Michalopoulos has been a professor in the Department of Civil
Engineering at the University of Minnesota. Dr. Michalopoulos has more than 32
years of research, teaching, and consulting experience in traffic engineering
operations and control. He has taught at several universities, consulted with
many firms in the United States and abroad in the area of traffic control, and
has worked as a traffic engineer. Dr. Michalopoulos is a member of the
compensation and stock option committee.
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JAMES MURDAKES, age 70, director since 1994. Mr. Murdakes was elected Chairman
of the Board of Image Sensing Systems in February 2002 and was appointed interim
Chief Executive Officer and President of Image Sensing Systems, Inc. in April
2002. He served as President and Chief Executive Officer of LSC, Inc., a
Minneapolis-based systems integrator for computer network storage servers, from
1993 through 1996, and was Chairman of the Board of Directors and a management
consultant to LSC in 1997. He retired from full-time employment in 1998.
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In addition to Mr. Murdakes, the other executive officers of Image
Sensing Systems and their biographical information are as follows:
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MATS JOHAN BILLOW, age 39, was appointed Managing Director of our wholly owned
subsidiary Flow Traffic Ltd. in June 2002 and became Vice President for
International Business of Image Sensing Systems in February 2002. Flow Traffic
distributes traffic management products and systems and provides marketing and
technical support for a broad range of traffic technologies throughout Asia. Mr.
Billow founded Flow Traffic in 1998 and served as its General Manager from its
inception through June 2002. Between 1996 and 1998, Mr. Billow was the General
Manager of Peek Ltd., the Asia-Pacific arm of Peek plc, a provider of products
and services for improving traffic and the traveler environment with
responsibility for Peek's traffic business in East Asia. During this time he
managed Peek's Chinese joint venture business and various traffic projects
funded by the World Bank and Asian Development Bank. Mr. Billow has served as a
member of our Board of Directors since February 2002 but is not standing for
reelection at the 2002 annual meeting.
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ARTHUR J. BOURGEOIS, age 61, has served as Chief Financial Officer and Treasurer
since May 2002. From 1995 through October 1999, Mr. Bourgeois served in this
same capacity for Image Sensing Systems, Inc. Mr. Bourgeois was retired from
employment from October 1999 to May 2002. From 1965 through 1994, he practiced
as a CPA ending his professional public accounting career as an audit partner
with Ernst & Young.
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BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 2001, the Board of Directors
met eight times. Each of the directors attended more than 75% of the aggregate
of all meetings of the Board of Directors and of the committees on which they
served. The Board of Directors and its committees also act from time to time by
written consent in lieu of meetings.
The Board of Directors has a standing audit committee and a standing
compensation and stock option committee. The current membership of these
committees is indicated in the foregoing section. The Board of Directors does
not have a standing nominating committee.
The compensation and stock option committee reviews and recommends to
the Board of Directors the compensation guidelines and stock option grants for
executive officers and other key personnel. During fiscal 2001, the compensation
and stock option committee held four meetings.
The audit committee makes recommendations as to the selection of
independent auditors and their compensation and reviews with the auditors the
scope of the annual audit, matters of internal control and procedure and the
adequacy thereof, the audit results and reports and other general matters
relating to our accounts, records,
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controls and financial reporting. The audit committee's responsibilities are
further described in the report of the audit committee on page 10 of this proxy
statement. During fiscal 2001, the audit committee held eight meetings.
COMPENSATION OF DIRECTORS
Each of our non-employee directors receives an annual retainer for
serving as a director. In 2001, each non-employee director received a total
annual retainer of $10,000, with $4,000 paid immediately after the annual
shareholders' meeting and $500 paid each month during which the director served
on the Board. Directors who are appointed to the Board at any time after the
annual meeting receive a pro rata amount. The amount of the annual retainer and
its payment schedule will remain unchanged in 2002. Non-employee directors also
are granted a non-incentive stock option to purchase 36,000 shares of our common
stock which become exercisable in three equal installments on the first, second
and third anniversary of service on the Board of Directors. These grants are
made under our 1995 Long-Term Incentive and Stock Option Plan. Directors who are
employees of Image Sensing Systems do not receive any additional compensation
for their service on the Board of Directors, except that the Board of Directors
has determined to pay Mr. Murdakes an additional $7,000 per month during his
service as interim President and Chief Executive Officer. Mr. Murdakes is
serving in this capacity without an employment agreement.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation
awarded to or earned in the last three fiscal years by our chief executive
officer and each of our other executive officers whose annual compensation paid
by us in fiscal 2001 exceeded $100,000.
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
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SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS(5) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
--------------------------------------- ---- ----------- ---------- -------------- -----------------
William L. Russell(1) 2001 157,500 13,750 -- --
President and Chief Executive Officer 2000 152,694 -- 135,000 --
1999 144,585 26,250 -- 2,165(6)
Mats Johan Billow(2) 2001 170,964 7,067 -- 4,241(7)
Managing Director, Flow Traffic Ltd. 2000 123,910 45,000 -- --
and Vice President for International 1999 105,128 11,538 -- --
Business, Image Sensing Systems
Anthony H. Gould(3) 2001 203,400 -- -- --
Interim President and Chief Executive 2000 198,900 -- -- --
Officer of Image Sensing Systems and 1999 194,400 -- 12,000 --
Managing Director, Image Sensing
Systems Asia
Jeffrey F. Martin(4) 2001 110,250 -- -- --
Chief Financial Officer 2000 106,380 -- -- --
1999 2,827(4) -- 30,000 --
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(1) Mr. Russell resigned as President and Chief Executive Officer on
February 11, 2002.
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(2) Mr. Billow became Managing Director of Flow Traffic Ltd. in June 2002
and Vice President for International Business on February 12, 2002. He
served as General Manager of our subsidiary Flow Traffic Ltd. from
December 1998 until June 2002.
(3) Mr. Gould served as Managing Director, Image Sensing Systems Asia and
Managing Director of our subsidiary Flow Traffic Ltd. from December
1998 and served as interim President and Chief Executive Officer of
Image Sensing Systems, Inc. from February 12, 2002. He resigned from
all of these positions on April 15, 2002.
(4) Mr. Martin commenced employment with us on December 21, 1999. He
resigned as Chief Financial Officer on April 30, 2002.
(5) The options were granted under the Image Sensing Systems, Inc. 1995
Long-Term Incentive and Stock Option Plan.
(6) Represents matching contributions paid by Image Sensing Systems
pursuant to our 401(k) plan.
(7) Represents a pension plan contribution paid by Flow Traffic Ltd.
STOCK OPTIONS
In fiscal 2001, no stock options were awarded to the individuals named
in the Summary Compensation Table above. The following table provides
information concerning options exercised by these individuals during fiscal
2001.
AGGREGATED OPTION EXERCISES IN FISCAL 2001
AND VALUE OF OPTIONS AT END OF FISCAL 2001
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/31/01 12/31/01 ($)(2)
------------------------------- --------------------------
SHARES VALUE
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE
---------------------- ----------------- -------------- ------------------------------- --------------------------
William L. Russell 1,900 3,401 121,100/120,000(3) --
Mats Johan Billow -- -- -- --
Anthony H. Gould -- -- 9,000/12,000(3) --
Jeffrey F. Martin -- -- 15,000/30,000(3) --
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(1) Value determined by subtracting the exercise price per share from the
closing price per share of our common stock on the date of exercise.
(2) Because the exercise price of the options exceeded the fair market
value of our common stock on December 31, 2001, none of the options
held by these individuals were in the money as of December 31, 2001.
(3) In accordance with the option agreements between Image Sensing Systems
and each of Mr. Russell, Mr. Gould and Mr. Martin, all options held by
the individual that remain unvested and/or unexercised three months
after the individual's resignation from Image Sensing Systems
automatically terminate.
EMPLOYMENT AGREEMENTS
James Murdakes
Mr. Murdakes was appointed interim President and Chief Executive Office
on April 15, 2002. The Board of Directors has authorized payment of $7,000 per
month to Mr. Murdakes as consideration of his service in these capacities. Mr.
Murdakes is serving without an employment agreement. He continues to receive
payment of his
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annual retainer for service to the Board. See "Compensation of Directors"
beginning on page 5 of this proxy statement.
Arthur J. Bourgeois
Mr. Bourgeois was appointed Chief Financial Officer on May 1, 2002. We
have entered into a consulting agreement with Mr. Bourgeois, pursuant to which
he is paid $6,500 per month. The agreement can be terminated by either party
with one month's notice.
Mats Johan Billow
Mr. Billow was appointed Managing Director of our wholly owned
subsidiary Flow Traffic Ltd. in June 2002 and became Vice President for
International Business of Image Sensing Systems on February 12, 2002. Flow
Traffic and Image Sensing Systems entered into an employment agreement with Mr.
Billow on June 14, 2002, in which we agreed to guarantee certain of Flow
Traffic's obligations to Mr. Billow set forth in the agreement. The agreement
was effective as of April 1, 2002 and provides for annual base compensation to
Mr. Billow of HK$1,586,000 (approximately US$203,333) per year, which includes a
provision for a housing allowance and which is subject to annual review by Flow
Traffic's Board of Directors. In addition, Mr. Billow is eligible to receive
incentive compensation, as follows:
- For the year ended December 31, 2002, if Flow Traffic achieves
pre-tax net income of between US$181,818 and US$250,000, Mr.
Billow will receive a cash bonus in an amount equal to 10% of
Flow Traffic's pre-tax net income (but not to exceed $25,000),
except that if, after taking the payment of any such bonus into
account, Flow Traffic's pre-tax net income would fall below
$181,818, then the bonus will be decreased by an amount equal
to the difference between $181,818 and the lower pre-tax net
income amount. If, after taking the payment of any such bonus
into account, Flow Traffic achieves pre-tax net income in
excess of US$250,000, then Mr. Billow will receive a bonus of
$25,000 plus an additional cash bonus of up to five percent of
any pre-tax net income exceeding $250,000 after giving effect
to all bonuses paid to Mr. Billow and other Flow Traffic
employees.
- For subsequent years, Mr. Billow will be eligible for incentive
compensation in accordance with bonus plans established by Flow
Traffic's Board of Directors.
The agreement may be terminated by Mr. Billow for any reason upon six
months' notice, effective no earlier than January 1, 2004, and may be terminated
by Flow Traffic for any reason at any time on or after January 1, 2004. Pursuant
to the agreement, if Flow Traffic terminates Mr. Billow without cause, it must
pay him severance in an amount equal to one year of Mr. Billow's base
compensation. During the term of the agreement and for a period of 12 months
following any termination of employment, Mr. Billow will not (a) directly or
indirectly engage in any business activity that is competitive with any business
of Flow Traffic or Image Sensing Systems, (b) provide technical, commercial or
professional advice to any business that is competitive with Flow Traffic or
Image Sensing Systems, or (c) solicit or otherwise interfere with the
relationship between Flow Traffic or Image Sensing Systems and any entity or
individual who has been a customer, supplier or employee of Flow Traffic or
Image Sensing Systems at any time during the term of Mr. Billow's employment
with Flow Traffic. In addition, the agreement provides for the non-disclosure of
confidential information of Flow Traffic and Image Sensing Systems both during
the term and following termination of the agreement.
In connection with the employment agreement, Mr. Billow also was
granted an option to purchase 100,000 shares of our common stock. Half of these
option shares will vest in cumulative installments of 12,500 shares on the first
four anniversaries of the date of grant, and the remaining half will vest in
cumulative installments of 12,500 shares on the first four anniversaries of the
date of grant only if certain performance targets are met. The option
immediately vests in full upon a change of control of Image Sensing Systems.
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Anthony H. Gould
Mr. Gould was appointed interim President and Chief Executive Officer
on February 12, 2002 and resigned on April 15, 2002. In December 1998, we
entered into a consulting agreement with Grove Place Limited, a consulting
company of which Anthony H. Gould was an employee, pursuant to which Mr. Gould
agreed to serve as Managing Director of Image Sensing Systems Asia effective as
of December 1, 1998. The consulting agreement continued to govern our employment
arrangement with Mr. Gould when he served as our interim President and Chief
Executive Officer. Under the agreement, Mr. Gould was entitled to monthly
compensation of $16,200, subject to annual review and adjustment. The agreement
provided for the grant of an option to purchase 12,000 shares of our common
stock and entitled Mr. Gould to participate in any annual bonus plan for Image
Sensing System's management. In the event of Mr. Gould's serious illness,
accident or other medical incapacity, Mr. Gould was entitled to up to 180 days
base pay in any 12-month period and such remuneration thereafter as the Board
determined in its discretion. The agreement also could be terminated by Image
Sensing Systems immediately for cause (as described in the agreement) or upon
four months' notice in the event of Mr. Gould's incapacity for a continuous
period of 180 days or periods aggregating 125 working days in the preceding 12
months. The agreement could be terminated by either party for any reason upon
six months' prior written notice. During the term of the agreement, Mr. Gould
was prohibited from undertaking any other business or profession or becoming an
employee or agent of any other company, firm or person or assist in any other
business or profession. For a period of 12 months following termination of the
agreement, Mr. Gould may not (a) directly or indirectly engage in any business
activity that is competitive with any business of Image Sensing Systems, (b)
provide technical, commercial or professional advice to any business that is
competitive with Image Sensing Systems, or (c) solicit or otherwise interfere
with the relationship between Image Sensing Systems and any entity or individual
who has been a customer, supplier or employee of Image Sensing Systems at any
time during the 12 months prior to Mr. Gould's termination. In addition, the
agreement provides for the non-disclosure of confidential information of Image
Sensing Systems both during the term and following termination of the agreement.
In connection with his resignation on April 15, 2002, we entered into a
settlement and release agreement with Mr. Gould pursuant to which we mutually
agreed to Mr. Gould's resignation from all positions held with Image Sensing
Systems and the termination of his consultancy agreement, other than provisions
relating to non-competition, non-solicitation and confidentiality, which will
survive termination of the employment agreement. Under the settlement and
release agreement, we agreed to pay Mr. Gould a severance payment of $178,000,
payable in three installments: $60,000 on each of April 19 and September 1,
2002, and $58,000 by January 7, 2003. We also paid Mr. Gould $50,000 as
additional consideration in connection with the purchase of his minority shares
of our subsidiary Flow Traffic Ltd., which represented the earn-out portion of
the purchase.
William L. Russell
During 2001 and until his resignation on February 11, 2002, Mr. Russell
was party to an employment agreement with Image Sensing Systems, effective as of
June 2000, under which he agreed to serve as President and Chief Executive
Officer for a term of six years, after which time the agreement was terminable
by either party upon 12 months' notice. Under the agreement, Mr. Russell's base
salary was $157,500, subject to annual reevaluation, and Mr. Russell was
eligible for incentive compensation upon achieving performance objectives
established annually by Mr. Russell and the Board of Directors. Mr. Russell's
salary and bonus in fiscal 2001 was $167,000. Under the agreement, if we
terminated Mr. Russell other than for Good Cause (as defined in the agreement)
or if Mr. Russell's employment terminated as a result of our sale, acquisition
or merger, Mr. Russell would be entitled to severance equal to 12 months' salary
(plus benefits if termination is other than for Good Cause). Under his
agreement, Mr. Russell also agreed that for one year following termination of
his employment, he would not directly or indirectly engage in any business
activity that is competitive with any business of Image Sensing Systems or any
business that is engaged in the development or production of products intended
to compete with our products, and that he will not solicit or assist anyone else
in the solicitation of any of our then-current employees or solicit any of our
then-current customers. In addition, the agreement provided for the
non-disclosure of confidential information of Image Sensing Systems both during
the term and following termination of the agreement.
In connection with his resignation on February 11, 2002, we entered
into a settlement and release agreement with Mr. Russell pursuant to which we
mutually agreed to Mr. Russell's resignation from all positions held with Image
Sensing Systems and the termination of his employment agreement, other than
provisions relating
8
to non-competition, non-solicitation and confidentiality, which will survive
termination of the employment agreement. Under the settlement and release
agreement, we agreed to pay Mr. Russell a lump sum severance payment of
$167,000.
Jeffrey F. Martin
During 2001 and until his resignation on April 30, 2002, Mr. Martin was
party to an employment agreement with Image Sensing Systems, Inc., effective
December 1999, under which he agreed to serve as Chief Financial Officer for an
indefinite term. The agreement could be terminated by Mr. Martin or us for any
reason or no reason upon 90 days' notice, except that we could terminate the
agreement at any time without notice for Good Cause (as defined in the
agreement). The agreement provided that if we terminated Mr. Martin at any time
after Mr. Martin's first year of employment other than for Good Cause, we would
pay Mr. Martin severance equal to three months' salary and benefits. The
agreement also provided that if Mr. Martin was terminated as a result of our
sale, acquisition or merger, he would be entitled to severance equal to his
salary for the term of one year from his termination date or until Mr. Martin
obtained new employment, whichever was earlier. Under the terms of his
employment agreement, Mr. Martin was entitled to receive an annual base salary
of $110,250, subject to reevaluation from time to time, and was eligible for
incentive compensation subject to his achievement of performance objectives
established annually by Mr. Martin and the Board of Directors. Additionally,
upon commencement of his employment in December 1999, Mr. Martin received an
option to purchase 25,000 shares of our common stock. The option was to vest in
four equal, annual increments on the first four anniversaries of the date of the
employment agreement. The agreement also provided that during and for one year
following termination of his employment with us, he would not directly or
indirectly engage in any business activity that is competitive with any business
of Image Sensing Systems and that was engaged in the development or production
of products intended to compete with our products, and that he would not solicit
or assist anyone else in the solicitation of any of our then-current employees
or solicit any of our then-current customers.
In connection with his resignation on April 30, 2002, we entered into a
settlement and release agreement with Mr. Martin pursuant to which we mutually
agreed to Mr. Martin's resignation from all positions held with Image Sensing
Systems and the termination of his employment agreement, other than provisions
relating to non-competition, non-solicitation and confidentiality, which will
survive termination of the employment agreement. Under the settlement and
release agreement, we agreed to pay Mr. Martin a lump sum severance payment of
$35,628, less any applicable tax withholding.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 7, 2002 we purchased all of the shares then held by the
minority shareholders of our subsidiary Flow Traffic Ltd., making Flow Traffic
our wholly owned subsidiary. The purchase was made in accordance with the Shares
Sale and Purchase Agreement dated November 28, 2001, as amended on December 31,
2001, among Image Sensing Systems and the minority shareholders of Flow Traffic.
The agreement was amended on December 31, 2001, April 15, 2002 and June 14,
2002. At the time the agreement was entered into, the minority shareholders
included Mats Johan Billow and Grove Place Limited, a consulting company
affiliated with Anthony H. Gould. Subsequently, in February 2002, Mr. Billow and
Mr. Gould were elected to our Board of Directors, Mr. Gould was appointed as our
interim President and Chief Executive Officer, and Mr. Billow was appointed as
our Vice President for International Business. Prior to this purchase, we owned
six shares of Flow Traffic, and the minority shareholders collectively owned
four shares of Flow Traffic.
In accordance with the agreement and amendments, we agreed to pay the
following amounts to Mr. Billow and Mr. Gould as consideration for their shares:
- Cash payments to each of Mr. Billow and Mr. Gould at the time
of purchase of $125,000.
- Additional payments to each of Mr. Billow and Mr. Gould of
$225,000, payable at any time between April 1, 2003 and April
30, 2003 upon the request of Mr. Billow or Mr. Gould, which
payments are secured by letters of credit drawn in favor of Mr.
Billow and Mr. Gould and which expire on April 30, 2003.
9
- Non-interest bearing notes, maturing on January 7, 2007, in the
principal amount of $125,000 for each of Mr. Billow and Mr.
Gould. Each of the notes is convertible at any time prior to
January 7, 2007, into 50,000 shares of our common stock. The
holders may demand payment for their notes at any time after
April 1, 2003. The notes may be prepaid by us at any time
during year 2002 for their principal amount of $125,000 each
and without penalty or additional fees, or may be prepaid by us
at any time after April 1, 2003, for their principal amount of
$125,000 each plus an additional payment of $25,000 per note.
If not converted or paid by January 7, 2007, each note will be
redeemed by us on that date for its principal amount. Each note
also provides that if the note is converted into shares of our
common stock, we will register such shares with the Securities
and Exchange Commission, if so requested by the holder.
- A cash payment of $50,000 to Mr. Gould in April 2002, and a
cash payment of $50,000 to Mr. Billow payable in December 2002,
in satisfaction of certain earn-out provisions of the
agreement.
In fiscal 2001, Flow Traffic paid a cash dividend to each of its
shareholders, pursuant to which Mr. Billow and Mr. Gould each received $25,641.
REPORT OF THE AUDIT COMMITTEE
The audit committee of the Board of Directors is composed of the
following non-employee directors: Mr. Magnuson and Mr. Eleftheriou. Both of the
members of the audit committee are independent for purposes of the Nasdaq
listing requirements. The audit committee operates under a written charter
adopted by the Board of Directors, a copy of which was attached to Image Sensing
Systems' proxy statement for the 2001 annual meeting of shareholders.
The audit committee oversees Image Sensing System's financial reporting
process on behalf of the Board of Directors and recommends to the Board of
Directors the appointment of independent accountants. Management has the primary
responsibility for the financial reporting process, including the company's
system of internal controls. The independent accountants are responsible for
performing an independent audit of the company's consolidated financial
statements in accordance with generally accepted auditing standards and to issue
a report on the company's financial statements. The committee discusses with the
internal and independent auditors the overall scope and plans for their
respective audits and meets with the internal and independent auditors, with and
without management present, to discuss the results of their examinations, their
evaluations of our internal controls, and the overall quality of the company's
financial reporting.
In fulfilling our oversight responsibilities, the audit committee has
met and held discussions with management and the independent auditors. The audit
committee reviewed the financial statements with management and the independent
auditors, including a discussion of the application of generally accepted
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements. The audit committee also has
discussed with the independent auditors the auditors' independence from
management, including whether the provision of non-audit services is compatible
with maintaining the auditors' independence, and matters required to be
discussed by the Statement on Auditing Standards No. 61 (Communications with
Audit Committees), and the audit committee received from the independent
auditors the written disclosure required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees).
In reliance on the reviews and discussions referred to above, the
committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in Image Sensing Systems'
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001, filed
with the Securities and Exchange Commission. The committee also has recommended
the selection of Ernst & Young LLP as independent auditors for Image Sensing
Systems for the fiscal year ended December 31, 2002.
Richard C. Magnuson, Chair
Michael G. Eleftheriou
10
INDEPENDENT AUDITORS
APPOINTMENT OF AUDITORS FOR FISCAL 2002
Ernst & Young LLP audited our consolidated financial statements for the
fiscal year ended December 31, 2001. The Board of Directors intends to reappoint
Ernst & Young LLP as our independent auditors for the year ending December 31,
2002. A representative of Ernst & Young LLP is expected to be present at the
2002 annual meeting. The representative will have an opportunity to make a
statement at the meeting and will be available to respond to appropriate
questions from shareholders.
DISCLOSURE OF FEES PAID TO INDEPENDENT AUDITORS IN FISCAL 2001
Audit Fees
Audit fees billed or expected to be billed to us by Ernst & Young LLP
for the audit of our financial statements for the fiscal year ended December 31,
2001 and for reviews of our quarterly reports on Form 10-QSB for the last fiscal
year totaled $43,250.
Financial Information Systems Design and Implementation Fees
We did not engage Ernst & Young LLP to provide advice regarding
financial information systems design and implementation during the last fiscal
year.
All Other Fees
Fees billed or expected to be billed to us by Ernst & Young LLP for all
other non-audit services, including tax-related services, provided during the
last fiscal year totaled $14,336.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a shareholder to be presented in our proxy statement
for the 2003 annual meeting must comply with the applicable rules and
regulations of the Securities and Exchange Commission and must be received at
our principal executive offices, 500 Spruce Tree Centre, 1600 University Avenue
West, St. Paul, Minnesota 55104, not later than March 14, 2003. Pursuant to the
rules of the Securities and Exchange Commission, proxies solicited by management
for the next annual meeting may grant management the authority to vote in its
discretion on any proposal submitted by a shareholder otherwise than through
inclusion in the proxy statement for the meeting, unless we have received notice
of the shareholder proposal at our principal executive offices on or before May
28, 2003.
OTHER MATTERS
We are including with this proxy statement our Annual Report to
Shareholders for the year ended December 31, 2001, which includes an audited
balance sheet as of that date and the related statements of operations, cash
flows and shareholders' equity for fiscal 2001, as well as other financial
information relating to Image Sensing Systems, including Management's Discussion
and Analysis of Financial Condition and Results of Operations. Shareholders may
receive, upon payment of a reasonable fee, a copy of any exhibit to our Annual
Report on Form 10-KSB for fiscal 2001 as filed with the Securities and Exchange
Commission by writing to Image Sensing Systems, 500 Spruce Tree Centre, 1600
University Avenue West, St. Paul, Minnesota 55104, Attention: Chief Financial
Officer.
11
We know of no matters other than those that are described in this proxy
statement to come before the 2002 annual meeting of shareholders. However, if
any other matters are properly brought before the meeting, one or more persons
named in the enclosed proxy card or their substitutes will vote in accordance
with their best judgment on such matters.
/s/ James Murdakes
James Murdakes
Chairman of the Board, Chief Executive Officer,
President and Secretary
Dated: July 12, 2002
12
IMAGE SENSING SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, AUGUST 7, 2002
3:30 P.M. CENTRAL TIME
SCIENCE MUSEUM OF MINNESOTA
120 WEST KELLOGG BOULEVARD
ST. PAUL, MINNESOTA 55102
IMAGE SENSING SYSTEMS, INC. PROXY
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, having received the Notice of Annual Meeting and Proxy
Statement dated July 12, 2002, revoking any proxy previously given, hereby
appoint(s) James Murdakes and Arthur J. Bourgeois as proxies (each with the
power to act alone and with the power of substitution and revocation) to
represent the undersigned and to vote, as designated on the reverse side, all
shares of common stock of Image Sensing Systems, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at 3:30 p.m.
Central Time on Thursday, August 7, 2002 at the Science Museum of Minnesota, 120
West Kellogg Boulevard, St. Paul, Minnesota 55102, and at any adjournment or
postponement thereof. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" ALL NOMINEES FOR DIRECTOR AND IN THE DISCRETION OF THE NAMED PROXIES ON
ALL OTHER MATTERS.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
See reverse side for voting instructions.
- Detach below and return using the envelope provided -
--------------------------------------------------------------------------------
IMAGE SENSING SYSTEMS, INC. 2002 ANNUAL MEETING OF SHAREHOLDERS
1. Election of directors: 01 Richard P. Braun 04 Panos G. Michalopoulos
02 Michael G. Eleftheriou 05 James Murdakes
03 Richard C. Magnuson
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed to the left to vote for all nominees
(except as specified listed to the left.
below).
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
[ ]
Address Change? Mark Box [ ]
and Indicate changes below:
Date _____________________________________
[ ]
Signature(s) in Box
PLEASE DATE AND SIGN name(s) exactly as
shown on this proxy card. When shares are
held by joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.