EXHIBIT 10.1

CONVERTIBLE NOTE AGREEMENT

THIS CONVERTIBLE NOTE AGREEMENT (this “Agreement”) is entered into as of the __
day of September 2009, 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 $1,250,000 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”).  At the Closing, the Company will deliver to each of the
Investors a Note substantially as set forth in Exhibit B.

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

1.4           Subject to Section 2 below, the Loan and accrued interest will be
repaid on or prior to December 31, 2010 (the “Due Date”). Without derogating
from the provisions of Section 2 below, in the event that the Investment Amount
and accrued interest shall not be repaid by the Company by the Due Date and the
Investor has not converted the Investment Amount pursuant to Section 2 below the
Investor’s sole remedy for such non payment shall be the payment of additional
interest at a rate of 1% per month.

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.

 
 

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1.6           Grant of Warrant.         Simultaneously with the execution of
this Agreement, the Company shall deliver to each Lender a Warrant Agreement
(the “Warrant Agreement”) between each Lender and the Company substantially in
the form attached hereto as Schedule 1.6 providing the Lenders with a right to
purchase 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 Lenders under this Agreement, then
the Company shall issue additional Warrant Agreements to each Lender as
specified above.

2.           Conversion

2.1           Optional Conversion. Without derogating from the provisions of
Section 3 below, each of the Investors shall have at any time prior to the
repayment of such Investor’s Investment Amount 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 repayment 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.           Acceleration of Repayment.

The Investment Amount will become, in the Investors sole discretion, repayable
upon the occurrence of an Event of Acceleration (as defined below) that occurs
prior to the conversion of the Investment Amount under Section 2 above. For the
purposes of this Section 3, an “Event of Acceleration” shall be deemed to exist
upon the occurrence of any of the following:  (a) the Company files a petition
in bankruptcy, files a petition seeking any reorganization, arrangement,
composition, or similar relief under any law regarding insolvency or relief for
debtors, or makes an assignment for the benefit of creditors; (b) a receiver,
trustee, or similar officer is appointed for the business or a significant part
of the property of the Company, and such appointments are not stayed, enjoined,
or discharged within forty five (45) days from their commencement; (c) any
involuntary petition or proceeding under bankruptcy or insolvency laws is
instituted against the Company, and such actions are not stayed, enjoined, or
discharged within forty five (45) days from their commencement;  (d) the Company
adopts a resolution for discontinuance of its business or for its liquidation,
dissolution or winding-up; or (e)  a sale of all or substantially all of the
assets of the Company.

 
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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 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 ("Reports").  Each Investor has been informed that to due to the
Company’s current lack of cash resources, it was unable to obtain a review by
our registered independent accountants of the interim financial statements for
the three-month period ended March 31, 2009 and the six-month period ended June
30, 2009.  In addition, each Investor may have received in writing from the
Company such other information concerning its operations, financial condition
and other matters as such Investor has requested in writing, identified thereon
as "Other Written Information" and considered all factors such Investor deems
material in deciding on the advisability of investing in the Restricted Shares.

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 and purchased stock for their own account
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 Company
misrepresented the success of its business to induce Empire 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.

4.2.2           Mr. David Berman. On March 19, 2009, David Berman (“Berman”), an
investor in the Company, initiated a law suit against the Company in the Supreme
Court of the State of New York alleging that the Company misrepresented the
success of its business to induce Berman to invest in the Company.  Berman 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.  

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.

[5.4           Registration of the Restricted Shares.           The Company has
no intention to register the Restricted Shares on behalf of the Investors. ]

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 the
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 Note Agreement in
one or more counterparts as of the date first hereinabove set forth.

For the Company:

__________________:
By:           ____________________
Name:      ____________________
Title:        ____________________
 
For the Investors:

_______________
 
_________________
 
__________________
             
By:
 
By:
 
By:
 

 
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EXHIBIT A

LIST OF INVESTORS

Investor:
Portion of
Investment
Amount
Address
     

 
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EXHIBIT B

CONVERTIBLE NOTE

                                   

 
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