EXHIBIT 10.1

CONVERTIBLE LOAN AGREEMENT

THIS CONVERTIBLE LOAN AGREEMENT (this “Agreement”) is entered into as of the __
day of January 2010, by and between Neonode, Inc., a Delaware Company (the
“Company”), and each of the entities set forth in Exhibit A hereto (each, an
“Investor”; and collectively, the “Investors”).

WHEREAS, the Company requires an infusion of funds in order to finance the
operations of the Company as set forth herein; and

WHEREAS, the Investors are willing to make available a convertible loan to the
Company on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, the parties hereto hereby agree as follows:

1.           Convertible Loan.

1.1           Each of the Investors agrees to lend to the Company the amount set
forth opposite its name in Exhibit A hereto (the “Investment Amount”), for an
aggregate amount of up to $1,000,000 hereunder (the “Loan”), subject to the
terms and conditions of this Agreement.

1.2           Each of the Investors will transfer its respective Investment
Amount to the Company, in accordance with the wire transfer instructions
provided in writing by the Company to the Investors, on the first business day
following the approval of this Agreement by the Company’s Board of Directors
(the “Closing”).

1.3           The Loan will bear interest at a rate of 7% per year.  The accrued
interest will be payable on June 30th and December 31st.

1.4           Subject to Section 2 below, the Loan will be repaid in cash on
December 31, 2010 (the “Due Date”).

1.5           As security for the repayment of the Loan and accrued interest
when due, the Company hereby grants the Investors a security interest in the
intellectual property owned by the Company.  The security interest in the
Company’s intellectual property shall terminate upon either (a) the Company’s
complete repayment of the Loan and accrued interest, or (b) conversion of the
aggregate Investment Amount into the Restricted Shares.

1.6           Grant of Warrants.   Simultaneously with the execution of this
Agreement, the Company shall deliver to each Investor a Warrant Agreement (the
“Warrant Agreement”) between each Investor and the Company substantially in the
form attached hereto as Schedule 1.6, providing the Investors with a right to
purchase an aggregate amount of up to ___________________________ fully-paid and
non-assessable restricted shares of common stock of the Company, at a price of
$0.04 per share, (the “Warrant Shares”). In case the Company borrows additional
amounts from the Investors under this Agreement, then the Company shall issue
additional Warrant Agreements to each Investor as specified above.

 
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2.           Conversion

2.1           Optional Conversion. Each of the Investors shall have at any time
prior to the Due Date the option to convert its portion of the Investment Amount
into fully-paid and non-assessable restricted shares of common stock of the
Company, at a price of $0.02 per share, (the “Restricted Shares”).

2.2           Adjustment of Conversion Price.   Upon issuance of additional
common stock of the Company at a price per share less than $0.02 per share at a
subsequent round of financing prior to the conversion or repayment in full of
the Investment Amount, the conversion price for the Restricted Shares will be
reduced, for no additional consideration, to an amount equal to the price per
share paid for the common stock of the Company at such subsequent financing
round.

2.3           The Company shall, promptly upon any conversion of any Investor’s
Investment Amount, issue and deliver to such Investor a certificate representing
the number of shares of the Restricted Shares to which such Investor shall be
entitled upon conversion of such Investor’s Investment Amount (bearing such
legends as are required under applicable law, in the opinion of counsel of the
Company).
 
 
3.           Registration.   The Company shall make an effort to file with the
SEC a registration statement under the Securities Act after the filing of its
Annual Report on Form 10-K for the fiscal year ending December 31, 2009 (the
“Registration Statement”).  Subject to the Investors timely providing the
Company with all Investor information reasonably necessary for the inclusion of
the Investors’ Restricted Shares and Warrant Shares in the Registration
Statement, the Company shall take all reasonable action under its power and
control to include such shares in the Registration Statement so as to permit the
disposition of the shares so registered.  Notwithstanding the foregoing, if the
Registration Statement is pursuant to an underwritten offering and the managing
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then there shall be
excluded from such Registration Statement such number of Restrictive Shares and
Warrant Shares as agreed to by the Board of Directors and the managing
underwriter.  If any of the Investors are affiliates of the Company (as defined
in Rule 405) then the inclusion of such Investors’ Restricted Shares and Warrant
Shares in the Registration Statement will be limited so that the aggregate
amount of shares of Affiliates included in the Registration Statement shall be
no more than 9.99% of the aggregate market value of the Company’s outstanding
stock held by non-affiliates.

4.           Information on the Company; Legal Proceedings

4.1           Information on the Company. Each Investor has been furnished with
or has had access at the EDGAR website of the U.S. Securities and Exchange
Commission (the “SEC”) to the Company's Form 10-K filed on April 15, 2009 for
the fiscal year ended December 31, 2008 and the financial statements included
therein for the year ended December 31, 2008 together with all subsequent
filings made with the SEC available at the EDGAR website.  Each Investor has
been informed that due to the Company’s current lack of cash resources, it was
unable to obtain a review by its registered independent accountants of the
interim financial statements for the three month period ended March 31, 2009,
the six month period ended June 30, 2009, and the nine month period ended
September 30, 2009.  In addition, each Investor has received in writing from the
Company such other information concerning its operations, financial condition
and other matters as such Investor has requested in writing and considered all
factors such Investor deems material in deciding on the advisability of the Loan
and investing in the Restricted Shares.
 
 
 
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4.2           Legal Proceedings.

4.2.1          Empire Asset Management. On December 9, 2008, Empire Asset
Management (“Empire”), a broker dealer that acted as the Company’s financial
advisor and exclusive placement agent in previous private placement
transactions, initiated a law suit against the Company in the Supreme Court of
the State of New York alleging that the Corporation misrepresented the success
of its business to induce Empire’s customers to invest in the Company. Empire is
seeking compensatory damages in an unspecified amount for the harm allegedly
suffered. The Company believes that the action has no merit and intends to
defend vigorously against the action. The Company’s Directors and Officer (D&O)
insurance provider has extended coverage and will cover the costs of legal
representation, subject to the payment by the Company of the retention amount of
$150,000.

4.2.2           Mr. David Berman. On May 11, 2009, Mr. David Berman initiated a
law suit against the Company in the Supreme Court of the State of New York
alleging that the Corporation misrepresented the success of its business to
induce Mr. Berman to invest in the Company.  Mr. Berman, who was a client of
Empire, invested $549,860.00 in the Company’s private placement offerings on
March 4, 2008 and May 16, 2008 and purchased an additional 162,900 shares
totaling $251,081.69 in the aftermarket. The Company believes that the action
has no merit and intends to defend vigorously against the action. The Company’s
D&O insurance provider has extended coverage and will cover the costs of legal
representation, subject to the payment by the Company of the retention amount of
$150,000

4.2.3           Xerox Corporation. On October 2, 2009, Xerox Corporation
(“Xerox”) initiated a law suit against the Company in the Superior Court of
California alleging that the Company breached an equipment lease agreement with
Xerox and demanding payment of $108,592.81 plus interest and late payment
charges.  The Company intends to defend vigorously against the action.

5.           Representations, Warranties and Covenants of the Company

The Company hereby represents, warrants and covenants as follows:

5.1           Organization and Qualification.  The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power to own its properties and to
carry on its business as it is now being conducted.

5.2           Authorization, Enforceability.  (i) The Company has the requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder in accordance with the terms hereof; (ii) the execution
and delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by the Company’s
Board of Directors and further consent or authorization of the Company by its
Board of Directors is not required; and (iii) upon the execution and delivery of
this Agreement by the Company, this Agreement will constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of creditors’ rights and
remedies or by other equitable principles of general application.
 
 
 
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5.3           Issuance of the Restricted Shares.  The Restricted Shares to be
issued, sold and delivered by the Company hereunder, when so issued, sold and
delivered, will be duly and validly issued, fully paid and nonassessable and
will be issued in reliance upon applicable exemptions from the registration and
qualification provisions of all applicable securities laws of the United States
and each state whose securities laws may be applicable thereto.  All Restricted
Shares will be issued free of any preemptive or similar right and free and clear
of any claim, lien, security interest or other encumbrance.  Assuming the
accuracy of the Investors’ representations and warranties hereunder, the
issuance to the Investors of the Restricted Shares will be exempt from the
registration requirements of the Securities Act and will be made in reliance
upon applicable exemptions from the registration and qualification provisions of
all applicable state securities laws.

6.           Representations, Warranties, Acknowledgments, of the Investors

Each Investor hereby represents, warrants, acknowledges, understands and agrees
(as the case may be) to the following, and acknowledges that the Company's
reliance on exemption from registration pursuant to a registration statement
under the Securities Act of 1933, as amended (the “Securities Act”) is
predicated upon the representations of each Investor set forth herein:

6.1           Authorization.   The Investor has full power and authority to
enter into this Agreement, and the Agreement has been duly executed by the
Investor, and such authorization constitutes a valid and legally binding
obligation of the Investor, enforceable in accordance with its terms.

6.2           The Restricted Shares Are Not Registered.  The Investor hereby
acknowledges that the Restricted Shares will not be issued by the Company
pursuant to a registration statement under the Securities Act, and therefore the
Investor may be required to hold the Restricted Shares for an indeterminate
period.  The Restricted Shares are issued pursuant hereto in reliance upon a
specific exemption from the registration requirement of the Securities Act which
depends, in part, upon the accuracy of the representations, warranties, and
agreements of each Investor set forth in this Agreement.

6.3           Investment Intent.  The Investor is acquiring the Restricted
Shares for the Investor’s own account as principal, not as a nominee or agent,
for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof, in whole or in part, which resale,
distribution or fractionalization would violate the Securities Act.  The
Investor agrees that a legend to the foregoing effect may be placed upon any and
all certificates issued representing the Restricted Shares.  Further, the
Investor does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to the Restricted Shares, for which the Investor is
purchasing.  The Investor acknowledges that he has been afforded the opportunity
to ask questions of, and to obtain any information from, the Company and its
Board of Directors as he or she deems necessary to determine the suitability and
advisability of, and the merits and risk of, investing in the Company pursuant
hereto.

 
 
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6.4           Risk.   The Investor is aware that: (i) investment in the Company
involves a high degree of risk, may result in a lack liquidity, and places
substantial restrictions on transferability of interest; and (ii) no Federal or
state agency has made any finding or determination as to the fairness for
investment by the public, nor has made any recommendation or endorsement, of the
Restricted Shares.
 
6.5           ­Financial Ability.  The Investor has sufficient financial
resources available to support the loss of all or a portion of Investor’s
investment in the Company, has no need for liquidity in the investment in the
Company, and is able to bear the economic risk of the investment.  The Investor
is sophisticated and experienced in investment matters, and, as a result, is in
a position to evaluate an investment in the Company.

6.6           ­Information.  The Investor has been furnished with any and all
materials that he has requested relating to the Company or the offering of the
Restricted Shares, and the Investor has been afforded the opportunity to ask
questions of the senior management and directors of the Company concerning the
terms and conditions of the offering and to obtain any additional information
necessary to verify the accuracy of the information provided to the
Investor.  The Investor understands that such material is current information
about the Company and does not in any way guarantee future performance or the
completion of future proposed events discussed in such material.  The Investor,
either alone or with his professional advisors, has the capacity to protect his
own interests in connection with this transaction.

6.7           Regulation S Exemption.  If the Investor is not a U.S. Person, the
Investor understands that that the Restricted Shares are being offered and sold
to him in reliance on an exemption from the registration requirements of United
States federal and the state securities laws under Regulation S promulgated
under the Securities Act, and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments, and
understandings of the Investor to determine the applicability of such exemptions
and the suitability of the Investor to acquire the Restricted Shares.

6.8           The Investor consents to the Company making a notation on its
records or giving instructions to any transfer agent of the Company in order to
implement the restrictions on transfer of the Restricted Shares set forth in
this Section 6.

6.9           Legend.   The certificates representing the Restricted Shares
shall contain a legend substantially as follows:

“THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION
STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT, OR NEONODE,
INC. RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO
COUNSEL FOR NEONODE, INC. THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT IS AVAILABLE.”
 
 
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7.           Miscellaneous.

7.1           Each of the parties hereto shall perform such further acts and
execute such further documents as may reasonably be necessary to carry out and
give full effect to the provisions of this Agreement and the intentions of the
parties as reflected thereby.

7.2           This Agreement shall be governed by and construed according to the
laws of the State of New York, without regard to the conflict of laws provisions
thereof.

7.3           Except as otherwise expressly limited herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, and administrators of the parties hereto.

7.4           This Agreement and the Exhibits hereto constitute the full and
entire understanding and agreement between the parties with regard to the
subject matters hereof and thereof and supersede any prior agreement, understand
or contract, written or oral, with respect to the subject matter hereof and
thereof.

7.5           No delay or omission to exercise any right, power, or remedy
accruing to any party upon any breach or default under this Agreement, shall be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. All remedies, either under this Agreement or by law or otherwise
afforded to any of the parties, shall be cumulative and not alternative.

7.6           If any provision of this Agreement is held by a court of competent
jurisdiction to be unenforceable under applicable law, then such provision shall
be excluded from this Agreement and the remainder of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms; provided, however, that in such event this Agreement
shall be interpreted so as to give effect, to the greatest extent consistent
with and permitted by applicable law, to the meaning and intention of the
excluded provision as determined by such court of competent jurisdiction.

7.7           This Agreement may be executed in counterparts.

IN WITNESS WHEREOF the parties have signed this Convertible Loan Agreement in
one or more counterparts as of the date first hereinabove set forth.
 
 
 
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For the Company:

Neonode Inc.

By:           ____________________
Name:     ____________________
Title:       ____________________

For the Investors:
 
 
 
 
 
 
By:    By:    By:           
 
 
 
 
 
By:   
  By:    By: 

 

 
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EXHIBIT A

LIST OF INVESTORS
 

 
Investor:
Portion of Investment Amount
Address
                                         

 
 
 
 
 
 
 
 
 

 
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SCHEDULE 1.6

WARRANT AGREEMENT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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