Document:

Exhibit 10.14

 

		Thomas L. Thimot
	Chief Executive Officer

 tomthimot@authid.ai

 

November 19, 2021

 

Via E-MAIL

thomasszoke@authid.ai

 

Thomas R. Szoke

921 Parkside Pointe Boulevard

Apopke, FL 32712

 

		Re:	Terms of Separation

 

Dear Tom:

 

This letter confirms the agreement
(this “Agreement”) between you and Ipsidy Inc. (the “Company”), concerning your separation from
the Company. You and the Company shall collectively be referred to as the “Parties.”

 

Whereas,
the Parties entered into that certain Employment Offer Letter dated January 31, 2017 (the “Offer Letter”) and that
certain Executive Retention Agreement dated January 31, 2017 (the “Retention Agreement”), through which you were employed
by the Company as an Executive Officer;

 

Whereas,
you have indicated your intent to retire from the Company as of December 1, 2021 and the Parties have agreed to the terms of your separation
from the Company as an Executive Officer as more fully set forth below and your continuing as a consultant to the Company;

 

Whereas,
the Parties desire to fully and finally discharge, compromise, settle, and resolve any and all disputes, claims or controversies between
the Parties, including those arising from or related to the Offer Letter, the Retention Agreement and your separation from the Company;

 

Whereas,
the Parties expressly agree and acknowledge that the Retention Agreement and the separation benefits set forth therein do not apply and
are superseded and replaced in full by this Agreement; and

 

 

Ipsidy
Inc. ● 670 Long Beach Boulevard ● Long Beach, New York 11561 ● Tel +1 516 274 8700 ● www.authid.ai

 

     

     

    

 

		Thomas
R. Szoke:
	Page
                                            2

                                            November 19, 2021

 

Now,
therefore, the Parties enter into this Agreement under the following terms:

 

1. Separation
Date: December 1, 2021 is your last day of employment with the Company (the “Separation Date”).

 

2. Final
Pay & Expenses: 

 

(a) Company
agrees to pay you your final pay through the Separation Date on November 30, 2021. All payments hereunder shall be made subject to all
required State and Federal payroll deductions.

 

(b) Within
ten (10) days following submission to the Company of proper expense reports by the Executive, the Company shall reimburse the Executive
for all expenses incurred by the Executive, consistent with the Company’s expense reimbursement policy in effect prior to the incurring
of each such expense, in connection with the business of the Company prior to the Termination Date.

 

 

3. Separation
Benefits: In exchange for your agreement to the general mutual release and waiver of claims as set forth below and your other promises
herein, and following the Effective Date of this Agreement (defined below), the Company agrees to provide you with:

 

(a) COBRA:
As you are enrolled in the Company’s healthcare plans, coverage will end on the last day of the month during which separation occurs,
namely December 31, 2021. Commencing January 1, 2022, you are eligible for continued medical coverage under the federal law known as COBRA.
Coverage may be purchased for such period as may permitted by law. Upon your timely election to continue your existing health benefits
under COBRA, and provided, however, that (i) you constitute a qualified beneficiary, as defined in Section 4980(B)(g)(1) of the Internal
Revenue Code of 1986, as amended (the “Code”), and (ii) you elect continuation coverage within the time period prescribed
pursuant to COBRA, and consistent with the terms of COBRA and the Company’s health insurance plan, you may continue coverage under
the Company’s then existing health benefits plan. You will thereafter be responsible for the payment of premiums for any health
insurance. Notwithstanding the foregoing at your election, you will make arrangements for your own health insurance

 

(b) Indemnification:
The terms of that certain Indemnification Agreement, dated as of January 31, 2017, by and between you and the Company shall govern all
claims related to actions arising prior to the Separation Date to the fullest extent permitted by law, and the Company shall continue
to provide coverage under the Company’s Directors and Officers Insurance Policy for not less than twenty-four (24) months following
the Separation Date under substantially the same terms in effect immediately prior to the Separation Date.

 

(c) Equity:
Your outstanding options to purchase (the “Stock Options”) 33,334 shares of the Common Stock (“Shares”)
granted to you May 5, 2021 shall become fully vested upon the Separation Date and shall remain outstanding and may be exercised for the
remaining term applicable to such Stock Options. Your remaining Stock Options to purchase 333,333 shares are already fully vested and
shall remain outstanding and may be exercised for the remaining term applicable to such Stock Options.

 

 

Ipsidy
Inc. ● 670 Long Beach Boulevard ● Long Beach, New York 11561 ● Tel +1 516 274 8700 ● www.authid.ai

 

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		Thomas
R. Szoke:
	Page
                                            3

                                            November 19, 2021

 

4. Proprietary
Information: You hereby acknowledge that you are bound by the Employee Invention Assignment and Confidentiality Agreement dated
January 31, 2017 (the “Invention Assignment Agreement”) and that as a result of your employment with the Company
you have had access to the Company’s Confidential Information (as defined in the Invention Assignment Agreement), that you
will hold all Confidential Information in strictest confidence and that you will not make use of such Confidential Information on
behalf of anyone, other than the Company. The Invention Assignment Agreement shall remain in full force and effect and shall
continue to apply to any Confidential Information you may receive as a consultant of the Company.

 

5. Mutual
General Release and Waiver of Claims: 

 

(a) To
the fullest extent permitted by law, in consideration of the Parties’ mutual waivers and releases hereunder and the provision of
severance and other benefits hereunder you for yourself and your agents, successors, heirs, executors, administrators and assigns, (collectively
the “Szoke Releasees”) hereby irrevocably and unconditionally forever release and discharge the Company and each of
its current and former predecessors, successors, affiliates, subsidiaries, benefit plans and assigns, and each of their current and former
directors, officers, members, trustees, administrators, employees, representatives and agents (collectively, the “Company Releasees”)
and the Company Releasees hereby irrevocably and unconditionally forever release and discharge the Szoke Releasees from any claims they
may have against each other, up to and including the date of this Agreement, subject to sub-section 5(b) below. For the purpose of implementing
a full and complete release and discharge of the Company Releasees and the Szoke Releasees respectively as set forth above, the Parties
acknowledge and agree that this Release is intended to include in its effect, without limitation, all claims whether known or not known,
including, without limitation, claims under any employment laws, including, but not limited to, claims of unlawful discharge, breach of
contract, breach of the covenant of good faith and fair dealing, fraud, violation of public policy, defamation, physical injury, emotional
distress, claims for additional compensation or benefits arising out of your employment or your separation of employment, claims arising
from or related to the Retention Agreement, your Offer Letter claims under Title VII of the 1964 Civil Rights Act, as amended, the New
York Human Rights Law and any other laws and/or regulations relating to employment or employment discrimination, including, without limitation,
claims based on age or under the Age Discrimination in Employment Act or Older Workers Benefit Protection Act, and/or claims based on
disability or under the Americans with Disabilities Act, the Family and Medical Leave Act and any similar state laws, all applicable state
and local wage and hour laws, and the Codes, Rules and Regulations of the State of New York and the State of Florida.

 

(b) The
Parties do not intend to release claims that may not be released as a matter of law, nor any claims for indemnity (including under Section
3(b) of this Agreement), any claims for enforcement of this Agreement, or any claims arising after the date hereof. To the fullest
extent permitted by law, any dispute regarding the scope of this general release shall be determined by an arbitrator under the procedures
set forth in the arbitration clause below.

 

 

Ipsidy
Inc. ● 670 Long Beach Boulevard ● Long Beach, New York 11561 ● Tel +1 516 274 8700 ● www.authid.ai

 

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		Thomas
R. Szoke:
	Page
                                            4

                                            November 19, 2021

 

6. Arbitration:

 

(a) Disputes
Subject to Arbitration. Any claim, dispute or controversy arising out of this Agreement (other than claims relating to misuse or misappropriation
of the intellectual property of the Company), the interpretation, validity or enforceability of this Agreement or the alleged breach thereof
shall be submitted by the parties to binding arbitration by a sole arbitrator under the rules of the American Arbitration Association;
provided, however, that (a) the arbitrator shall have no authority to make any ruling or judgment that would confer any rights with
respect to the trade secrets, confidential and proprietary information or other intellectual property of the Company upon you or any third
party; and (b) this arbitration provision shall not preclude the Company from seeking legal and equitable relief from any court having
jurisdiction with respect to any disputes or claims relating to or arising out of the misuse or misappropriation of the Company’s
intellectual property. Judgment may be entered on the award of the arbitrator in any court having jurisdiction.

 

(b) Costs
of Arbitration. All costs of arbitration, including your reasonable attorney’s fees, will be borne by the Company, except that
if you initiate arbitration and the arbitrator finds your claims to be frivolous you shall be responsible for his own costs and attorneys
fees.

 

(c) Site
of Arbitration. The site of the arbitration proceeding shall be in New York City, New York.

 

7. Attorneys’
Fees: If any action is brought to enforce the terms of this Agreement that is not subject to mandatory arbitration pursuant to Section
6 above, the prevailing party will be entitled to recover its reasonable attorneys’ fees, costs and expenses from the other
party, in addition to any other relief to which the prevailing party may be entitled.

 

8. No
Admission of Liability: This Agreement is not and shall not be construed or contended by either party to be an admission or evidence
of any wrongdoing or liability on the part of the Parties or the respective Releasees. 

 

9. Complete
Agreement: This Agreement constitutes the entire agreement between the Parties and their respective Releasees with respect to the
subject matter hereof and supersedes all prior negotiations and agreements, whether written or oral, relating to such subject matter,
specifically including but not limited to the Retention Agreement and the Offer Letter; provided, however, that this Agreement expressly
does not supersede, modify, amend or affect the Indemnification Agreement and the Invention Agreement, (except to the extent expressly
amended hereby). You acknowledge that neither Releasees nor their agents or attorneys have made any promise, representation or warranty
whatsoever, either express or implied, written or oral, which is not contained in this Agreement for the purpose of inducing you to execute
the Agreement, and you acknowledge that you have executed this Agreement in reliance only upon such promises, representations and warranties
as are contained herein. 

 

 

Ipsidy
Inc. ● 670 Long Beach Boulevard ● Long Beach, New York 11561 ● Tel +1 516 274 8700 ● www.authid.ai

 

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		Thomas
R. Szoke:
	Page
                                            5

                                            November 19, 2021

 

10. Voluntary
Execution. You explicitly and unconditionally acknowledge and agree that you:

 

(a) have
carefully read and fully understand all of the terms of this Agreement;

 

(b) understand
that by signing this Agreement, you are waiving your rights to all claims described in Paragraph 5 of this Agreement, and that you are
not waiving any rights arising after the date that this Agreement is signed; 

 

(c) knowingly
and voluntarily agree to all of the terms set forth in this Agreement; 

 

(d) knowingly
and voluntarily intend to be legally bound by this Agreement;

 

(e) are
receiving consideration (i.e. equity and other benefits and resolution of a dispute without the risks and burdens of arbitration, a release)
in addition to anything of value to which you are already entitled;

 

(f)
are hereby advised in writing to consult with an attorney prior to signing this Agreement;

 

(g) have
been given 21 days within which to consider this Agreement before signing it, and understand that the running of that 21-day period will
not be re-started by any changes to this Agreement;

 

(h) are
hereby advised that you may revoke this Agreement in writing within 7 days of signing it (by submitting such written revocation to first
by e-mail and then by U.S. Mail Stuart Stoller, CFO, Ipsidy Inc., 670 Long Beach Boulevard, Long Beach, NY 11561 no later than the 8th
day after signing), and that therefore, this Agreement shall not become effective or enforceable, nor shall any consideration be paid,
until this 7-day revocation period has expired (the “Effective Date”); and

 

(i) have
not been coerced, threatened, or intimidated in any way into signing this Agreement.

 

11. Employment
Verification: All inquiries regarding your employment with the Company should be directed to Stuart Stoller – CFO, Ipsidy Inc.,
670 Long Beach Boulevard, Long Beach, NY 11651, or email: StuartStoller@authid.ai. Reference inquiries will be responded to only by verifying
dates of employment and last position held.

 

12. Future
Address & Email Changes: As it may be necessary for the Company to reach you in the future, Company requests that you notify the
Company if you change your residence or email address. All such notifications should be sent to Stuart Stoller – CFO, Ipsidy Inc.,
as above.

 

13. Severability:
The provisions of this Agreement are severable, and if any part of it is found to be invalid or unenforceable, the other parts shall remain
fully valid and enforceable. Specifically, should a court, arbitrator, or government agency conclude that a particular claim may not be
released as a matter of law, it is the intention of the Parties that the general release, the waiver of unknown claims and the covenant
not to sue above shall otherwise remain effective to release any and all other claims.

 

 

Ipsidy
Inc. ● 670 Long Beach Boulevard ● Long Beach, New York 11561 ● Tel +1 516 274 8700 ● www.authid.ai

 

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		Thomas
R. Szoke:
	Page
                                            6

                                            November 19, 2021

 

14. Modification;
Counterparts; Electronic Signatures: It is expressly agreed that this Agreement may not be altered, amended, modified, or otherwise
changed in any respect except by another written agreement that specifically refers to this Agreement, executed by authorized representatives
of each of the parties to this Agreement. This Agreement may be executed in any number of counterparts, each of which shall constitute
an original and all of which together shall constitute one and the same instrument. Execution of a facsimile, PDF or other electronic
signature (e.g., DocuSign, EchoSign) shall have the same force and effect as execution of an original, and a copy of a signature will
be equally admissible in any legal proceeding as if an original.

 

15. Governing
Law: This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

16. Additional
Matters and Further Assurance: 

 

(a) You
hereby agree to do all such acts and execute and deliver all such documents and property as the Company may reasonably require at its
cost in order to (1) resign from all other offices of the Company and its subsidiaries; (2) remove yourself as a signatory of any bank
or other financial accounts of the Company or its subsidiaries; (3) transfer to or to the order of the Company any property which you
hold on its behalf as trustee or nominee, or otherwise in connection with your employment; and (4) carry out
the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 

 

(b) The
Company hereby agrees to do all such acts and execute and deliver all such documents and property as you may reasonably require
at the Company’s cost in order to carry out the intent and accomplish the purposes of
this Agreement and the consummation of the transactions contemplated hereby.

 

(c)
The Company agrees to accord you the title of “Founder Emeritus”, which it intends to include in the press release announcing
your retirement. Company may include your likeness and such title and a brief bio on its website, at its discretion.

 

 

Ipsidy
Inc. ● 670 Long Beach Boulevard ● Long Beach, New York 11561 ● Tel +1 516 274 8700 ● www.authid.ai

 

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		Thomas
R. Szoke:
	Page
                                            7

                                            November 19, 2021

 

We appreciate your long years of service and contributions
to the Company.

 

	 	Sincerely,
	 	 
	 	Ipsidy Inc.
	 	 
	 	/s/ Thomas L. Thimot
	 	 
	 	Thomas L. Thimot, CEO

 

	READ, AGREED AND CONSENTED TO:	 	 
	 	 	 
	/s/ Thomas R. Szoke	 	November 20, 2021
	THOMAS R. SZOKE	 	DATE

  

 

Ipsidy
Inc. ● 670 Long Beach Boulevard ● Long Beach, New York 11561 ● Tel +1 516 274 8700 ● www.authid.ai

 

 

7Exhibit 4.3

Description of Securities of Autoscope Technologies Corporation 
Registered Under Section 12 of the Securities Exchange Act of 1934

         

Autoscope Technologies Corporation (“Autoscope,” “we,” “us,” or “our”) has two classes of securities registered under the Securities Exchange Act of 1934, as amended: our common stock, $0.01 par value per share (the “Common Stock”), and our preferred stock purchase rights (the “Rights”) to purchase specified fractions of our Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”).

          The following description of our Common Stock, the Rights, and the Series A Preferred Stock is a summary and is subject to, and is qualified in its entirety by reference to, our Restated Articles of Incorporation (the “Articles”), including the Certificate of Designation of Series A Junior Participating Preferred Stock included therein (the “Certificate of Designation”) (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 21, 2021 (the “Form 8-K12B”); our Bylaws (the “Bylaws”) (incorporated by reference to Exhibit 3.2 to the Form 8-K12B); the Amended and Restated Rights Agreement dated as of July 21, 2021 by and among Autoscope, Continental Stock Transfer & Trust Company and, only with respect to Section 37 thereof, Image Sensing Systems, Inc. (the “Rights Agreement”) (incorporated by reference to Exhibit 4.1 to the Form 8-K12B); and the applicable provisions of the Minnesota Business Corporation Act, Chapter 302A of the Minnesota Statutes (the “MBCA”).  We encourage you to read our Articles, our Bylaws, the Rights Agreement, and the applicable provisions of the MBCA for additional information. 

Authorized Capital Stock

            Our Articles authorize us to issue a total of 25,000,000 shares of capital stock, consisting of 20,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, $0.01 par value per share.

Common Stock 

Voting Rights

The holders of shares of our Common Stock are entitled to one vote per share on all matters to be voted on by shareholders. Directors are elected by a plurality of the votes cast by shareholders present in person or represented by proxy at a meeting of the shareholders of Autoscope and entitled to vote on the election of directors. Except as otherwise provided by applicable law, our Articles, or our Bylaws, every matter other than the election of directors will be decided by the affirmative vote of a majority of the votes cast by shareholders present in person or represented by proxy at the shareholders meeting at which a quorum is present and entitled to vote on such matter. As provided in our Articles, holders of shares of our Common Stock are not entitled to cumulate their votes in the election of directors or with respect to any matter submitted to a vote of the shareholders.

Dividends

The holders of our Common Stock are entitled to receive dividends declared by our Board of Directors (the “Board”) out of funds legally available for the payment of dividends under the MBCA, subject to the rights, if any, of the holders of our preferred stock.

Liquidation

Upon any liquidation, dissolution or winding up of our business, the holders of Common Stock are entitled to share equally in all assets available for distribution after payment of all liabilities and provision for the liquidation preference of any shares of preferred stock then outstanding.

Rights and Preferences

The holders of our Common Stock have no preemptive rights and no rights to convert their Common Stock into any other securities. There are also no redemption or sinking fund provisions applicable to our Common Stock.

	

Listing and Transfer Agent

Our Common Stock is traded on The Nasdaq Capital Market under the trading symbol “AATC.” The transfer agent for our Common Stock is Continental Stock Transfer & Trust Company.

Preferred Stock

The Board has the authority, without further action by our shareholders, to issue up to 5,000,000 shares of our preferred stock, $0.01 par value per share, in one or more classes or series and to fix the rights, preferences, privileges and restrictions of the preferred stock. These rights, preferences, and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms, and the number of shares constituting, or the designation of, such class or series, any or all of which may be greater than the rights of Common Stock. The issuance of our preferred stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition, the issuance of shares of preferred stock could have the effect of delaying, deferring or preventing a change in control of Autoscope or other corporate action.

The Certificate of Designation included in the Articles sets forth the rights, powers and preferences of our Series A Preferred Stock, as described below. In addition, we have issued Rights to purchase specified fractions of Series A Preferred Stock. For more information about the Rights, see “Rights to Purchase Series A Preferred Stock” below.

            In addition, see “Anti-Takeover Effects of Provisions of Our Articles, Bylaws, and Minnesota Law” below.

Series A Preferred Stock

Amount

Under the Certificate of Designation, we may issue 50,000 shares of Series A Preferred Stock. As of February 28, 2022, there were no shares of Series A Preferred Stock outstanding.

Ranking

The Series A Preferred Stock will rank junior to all other series of any other class of Autoscope’s preferred stock as to the payment of dividends and the distribution of assets unless the terms of any such series provide otherwise.

Dividends and Distributions; Adjustment

Subject to the rights of the holders of any shares of any series of our preferred stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other junior stock of Autoscope, will be entitled to receive, when, as and if declared by the Board out of funds legally available for that purpose, quarterly dividends payable in cash on the last day of March, June, September, and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (1) $1.00 or (2) subject to the provision for adjustment described below, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non‐cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. If Autoscope at any time declares or pays any dividend on the Common Stock payable in shares of Common Stock, or effects a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the amount to which holders of shares of Series A Preferred Stock were entitled immediately before such event under clause (2) of the preceding sentence will be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

	

          

We will be required to declare a dividend or distribution on the Series A Preferred Stock as provided in the foregoing paragraph immediately after we declare a dividend or distribution on the Common Stock (other than dividends payable in shares of Common Stock).

Dividends will begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is before the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares will begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends will begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends will not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares will be allocated pro rata on a share‐by‐share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payments of a dividend or distribution declared on the shares of Series A Preferred Stock, which record date will be not more than 60 days before the date fixed for the payment of the dividend or distribution.

Voting Rights; Adjustment

Subject to the provision for adjustment set forth in the next sentence, each share of Series A Preferred Stock will entitle its holder to 1,000 votes on all matters submitted to a vote of the shareholders of Autoscope. If Autoscope declares or pays any dividend on the Common Stock payable in shares of Common Stock, or effects a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately before such event will be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event. Except as otherwise provided in the Certificate of Designation, in any other certificate of designation creating a series of Autoscope’s preferred stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of Autoscope having general voting rights will vote together as one class on all matters submitted to a vote of shareholders of Autoscope.

Certain Restrictions on Dividends

Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as described above are in arrears, Autoscope will be restricted in its ability to declare or pay dividends on, redeem, purchase or otherwise acquire for consideration, or make other distributions of shares of stock ranking junior to, or on parity with, the Series A Preferred Stock (subject to specified exceptions for stock ranking on a parity with the Series A Preferred Stock). In such event, Autoscope will also be restricted in its ability to purchase shares of Series A Preferred Stock.

Distribution Upon Liquidation of Dissolution

Upon any liquidation, dissolution or winding up of Autoscope, no distribution will be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock have received $1,000 per share, plus an amount equal to any accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock will be entitled to receive an aggregate amount per share, subject to the provision for adjustment set forth in the next sentence, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock; or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution, or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution, or winding up. If Autoscope declares or pays any dividend on the Common Stock payable in shares of Common Stock, or effects a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately before such event under the proviso in clause (1) of the preceding sentence will be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

	

 

Exchange Upon Consolidation or Merger 

If Autoscope enters into any consolidation, merger, combination, or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash, and/or any other property, then each share of Series A Preferred Stock will be similarly exchanged or changed into an amount per share, subject to the provision for adjustment set forth in the next sentence, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind) into which or for which each share of Common Stock is changed or exchanged. If Autoscope declares or pays any dividend on the Common Stock payable in shares of Common Stock, or effects a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock will be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

Redemption; Sinking Fund

The shares of Series A Preferred Stock will not be redeemable. There is no sinking fund provision that applies to the Series A Preferred Stock.

Amendments 

Our Articles (including the Certificate of Designation) may not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two‐thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.

Rights to Purchase Series A Preferred Stock

We are a party to the Rights Agreement with Continental Transfer & Trust Company, as rights agent. Effective on July 21, 2021, immediately after the merger of Image Sensing Systems, Inc. (“ISNS”) with and into Spruce Tree MergerCo, Inc. (the “Merger”), by which ISNS became a wholly-owned subsidiary of Autoscope, the Board authorized and declared a dividend distribution of one Right, initially representing the right to purchase from Autoscope one one‐thousandth of a share of Series A Preferred Stock, for each share of Common Stock outstanding on July 21, 2021 immediately after the effective time of the Merger on July 21, 2021, to the shareholders of record at the close of business on that date. The Rights Agreement will expire on June 4, 2022 at 6:00 p.m., Eastern time. On March 1, 2022, the Board adopted the First Amendment to Amended and Restated Rights Agreement (the “First Amendment”) to extend the expiration date of the Rights Agreement to the earlier of (1) 6:00 p.m., Eastern time, on June 4, 2024; (2) the time at which the Rights are redeemed or exchanged under the Rights Agreement; (3) the repeal of Section 382 of the Code or any successor statute or any other change if the Board determines that the Rights Agreement is no longer necessary or desirable for the preservation of the Tax Benefits; or (4) the time at which the Board determines that the Tax Benefits are fully utilized or no longer available.  The First Amendment is to be considered and voted on by Autoscope’s shareholders at the meeting of Autoscope’s shareholders scheduled for May 2022.

The Rights Agreement helps to preserve the value of certain deferred tax benefits of Autoscope, including those generated by net operating losses (collectively, the “Tax Benefits”). As of December 31, 2021, we estimate that we had U.S. federal net operating loss carryforwards of $16.7 million. Unless otherwise restricted, we believe that we will be able to carry forward a significant amount of these net operating loss carryforwards and any other Tax Benefits, and so these Tax Benefits could be a substantial asset to us. If we experience an ownership change for purposes of Section 382 of the United States Internal Revenue Code (the “Code”), however, our ability to use our Tax Benefits will be substantially limited. These limitations could require us to pay U.S. federal income taxes earlier than would otherwise be required if such limitations were not in effect and could cause the Tax Benefits to expire unused, in each case reducing or eliminating the benefit of the Tax Benefits. 

 

In general terms, the Rights Agreement works by imposing a significant penalty upon any person or group that acquires 4.99% or more of the outstanding shares of Autoscope’s Common Stock without the approval of the Board. Autoscope’s ability to use the Tax Benefits would be substantially limited if it were to experience an “ownership change” as defined under Section 382 of the Code. In general, an ownership change would occur if there is a greater than 50‐percentage point change in ownership of securities by shareholders owning (or deemed to own under Section 382 of the Code) five percent or more of a corporation’s securities over a rolling three‐year period. The Rights Agreement reduces the likelihood that changes in Autoscope’s investor base have the unintended effect of limiting Autoscope’s use of its Tax Benefits

	

Exercise of Rights

Before the “Distribution Date” (as defined below), the Rights are not exercisable, and they are evidenced by and traded with the stock certificates for the shares of Common Stock (or, with respect to any uncertificated shares of Common Stock registered in book entry form, by notation in book entry).

On or after the Distribution Date, each Right would initially entitle the holder to purchase one one‐thousandth of a share of Series A Preferred Stock for an initial purchase price of $25.00 per share, which is subject to adjustment (the “Purchase Price”).

The Rights will separate from the Common Stock and become exercisable following (1) the 10th business day (or such later date as may be determined by the Board) after the public announcement that an “Acquiring Person” (as defined below) has acquired beneficial ownership of 4.99% or more of the outstanding shares of Common Stock or (2) the 10th business day (or such later date as may be determined by the Board) after a person or group announces a tender or exchange offer that would result in ownership by a person or group of 4.99% or more of Autoscope’s Common Stock. The date on which the Rights separate from the shares of Autoscope’s Common Stock and become exercisable is the “Distribution Date.”

Definition of “Acquiring Person”

An “Acquiring Person” is a person or group that, together with affiliates and associates of such person or group, acquires beneficial ownership of 4.99% or more of Autoscope’s Common Stock, other than (1) an “Exempt Person” (as defined below); (2) any shareholder that, as of the time of the first public announcement of the Rights Agreement, beneficially owned 4.99% or more of Autoscope’s Common Stock (unless and until such person thereafter acquires any additional shares of Common Stock, subject to certain exceptions); (3) a person who becomes an Acquiring Person solely as a result of Autoscope repurchasing shares of its Common Stock; and (4) certain shareholders who inadvertently buy shares in excess of 4.99% of the shares of Common Stock and who thereafter reduce the percentage of the shares they own below 4.99%. An “Exempt Person” is defined as Autoscope; its subsidiaries and their respective employee benefit plans; and any person that the Board has affirmatively determined, in its sole discretion, before the Distribution Date, in light of the intent and purposes of the Rights Agreement or other circumstances facing Autoscope, will not be deemed an Acquiring Person.

Flip‐In

If an Acquiring Person acquires beneficial ownership of 4.99% or more of the outstanding shares of Autoscope’s Common Stock, all holders of Rights may purchase, for the Purchase Price, a number of shares of Common Stock (or, in certain circumstances, cash, property or other securities of Autoscope) having a then‐current market value equal to twice the Purchase Price, based on the market price of the Common Stock before such acquisition. However, the Rights are not exercisable following the occurrence of such an event until the Rights are no longer redeemable by Autoscope, as described below.

After the occurrence of an event described in the preceding paragraph, all Rights that are or, under certain circumstances specified in the Rights Agreement, were beneficially owned by an Acquiring Person or certain of its transferees will be null and void.

Flip Over

If, after an Acquiring Person obtains 4.99% or more of the outstanding shares of Autoscope’s Common Stock, Autoscope merges into another entity, an acquiring entity merges into Autoscope, or Autoscope sells or transfers more than 50% of its assets, cash flow or earning power, then each Right (except for Rights that have previously been voided as described above) will entitle its holder to purchase, for the Purchase Price, a number of shares of stock of the Acquiring Person engaging in the transaction having a then‐current market value equal to twice the Purchase Price, based on the market price of the Acquiring Person’s stock before such transaction. 

 

Exchange

After a person or group becomes an Acquiring Person, but before an Acquiring Person beneficially owns 50% of the outstanding shares of Autoscope’s Common Stock, the Board may extinguish the Rights (except for Rights that have previously been voided as set forth above), in whole or in part, by exchanging two shares of Common Stock or an equivalent security for each Right. In certain circumstances, Autoscope may elect to exchange the Rights for cash or other securities of Autoscope having a value approximately equal to two shares of Common Stock.

	

Term and Expiration

The Rights expire on the earliest of (1) 6:00 p.m., Eastern time, on June 4, 2022 if such extension (as evidenced by the First Amendment) is not approved by the holders of at least a majority of shares of Autoscope’s common stock present in person or represented by proxy and voting on the approval of the First Amendment at a meeting of our shareholders held before that time on June 4, 2022; (2) 6:00 p.m., Eastern time, on June 4, 2024, if the shareholders approve the First Amendment at our shareholders meeting held before 6:00 p.m., Eastern time, on June 4, 2022; (3) the time at which the Rights are redeemed or exchanged under the Rights Agreement; (4) the repeal of Section 382 of the Code or any successor statute or any other change if the Board determines that the Rights Agreement is no longer necessary or desirable for the preservation of the Tax Benefits; or (5) the time at which the Board determines that the Tax Benefits are fully utilized or no longer available.

Redemption

The Board may redeem the Rights for $0.001 per Right (payable in cash, shares of Autoscope’s Common Stock, or other consideration deemed appropriate by the Board) at any time before a person becomes an Acquiring Person. When the Board redeems the Rights, the Rights will terminate, and the only right of the holders of the Rights will be to receive the $0.001 redemption price. The redemption price will be adjusted if Autoscope undertakes a stock dividend or a stock split of its Common Stock.

Anti‐Dilution Provisions

The Board may adjust the Purchase Price, the number of shares of Series A Preferred Stock issuable, and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, or a reclassification of Autoscope’s Series A Preferred Stock or shares of Common Stock.

With certain exceptions, no adjustments to the Purchase Price will be made until the cumulative adjustments amount to at least 1% of the Purchase Price. No fractional share of Series A Preferred Stock will be issued and, in lieu thereof, an adjustment in cash will be made based on the current market price of the Series A Preferred Stock.

Amendments

The terms of the Rights and the Rights Agreement may be amended in any respect without the consent of the holders of the Rights on or before the Distribution Date. After the Distribution Date, the terms of the Rights and the Rights Agreement may be amended without the consent of the holders of Rights in order to cure any ambiguities, to shorten or lengthen any time period set forth in the Rights Agreement, or to make changes that do not adversely affect the interests of holders of the Rights.

Shareholder Rights; Taxes

Until a Right is exercised, the holder of the Right does not have any rights as a shareholder of Autoscope, including voting rights and the right to receive dividends. The distribution of Rights should not be taxable for federal income tax purposes. However, following any occurrence of an event that renders the Rights exercisable or upon any redemption of the Rights, shareholders may recognize taxable income.

Anti-Takeover Effects of Provisions of Our Articles, Bylaws, and Minnesota Law

Rights Agreement

 

As described above, the Rights Agreement, is designed to protect shareholder value by mitigating the likelihood of an “ownership change” that would result in significant limitations to our ability to use our net operating losses or other Tax Benefits to offset future income. The rights plan provides, subject to certain exceptions, that if any person or group acquires 4.99% or more of our outstanding shares of Common Stock, there would be a triggering event potentially resulting in significant dilution in the voting power and economic ownership of that person or group. Existing shareholders who owned 4.99% or more of our outstanding Common Stock as of the date the Rights Agreement was adopted will trigger a dilutive event only if they acquire an additional 1% of the outstanding shares of our Common Stock. For more information about the Rights and the Rights Agreement, see “Rights to Purchase Series A Preferred Stock.”

Minnesota Law

We are subject to the anti‐takeover provisions of section 302A.671 of the MBCA. This provision generally limits the voting rights of a shareholder acquiring at least 20% of the voting shares of a corporation in an attempted takeover or otherwise becoming a substantial shareholder unless holders of a majority of the voting power of the disinterested shares approve full voting rights for such substantial shareholder, with certain exceptions.

	

Section 302A.673 of the MBCA generally prohibits a public Minnesota corporation from engaging in a business combination with an interested shareholder for a period of four years after the date of the transaction in which the person became an interested shareholder unless before the date of the transaction, a committee of the board of directors of the corporation consisting of one or more disinterested directors or, if the board has no disinterested directors, by three or more disinterested persons selected by the board, approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder. As used in section 302A.673, a business combination includes:

	any merger or consolidation involving Autoscope or its subsidiary and the interested shareholder;
	any exchange under a plan of exchange of shares or other securities of Autoscope or its subsidiary or money, or other property for shares, other securities, money or property of the interested shareholder;
	any sale, lease, exchange, mortgage, pledge, transfer, or other disposition involving the interested shareholder of assets of Autoscope having an aggregate market value equal to 10% or more of the aggregate market value of all of the assets of Autoscope; 
	the issuance or transfer by the Company of shares of the Company that have an aggregate market value equal to at least 5% of the aggregate market value of all of the outstanding shares of the Company to the interested shareholder;
	Autoscope’s adoption of any plan or proposal for its liquidation or dissolution proposed by or on behalf of the interested shareholder;
	any reclassification of securities or recapitalization of Autoscope proposed by or on behalf of the interested shareholder that has the effect of increasing the proportionate share of any class or series of voting shares of Autoscope that is owned by the interested shareholders; or
	the receipt by the interested shareholder of the benefit of any loans, advances, guarantees, pledges, or other financial assistance provided by or through Autoscope.

In general, as used in section 302A.673, an interested shareholder is defined in section 302A.011, subdivision 49 as any entity or person beneficially owning, directly or indirectly, 10% or more of the outstanding voting stock of the Company, or an affiliate or associate of the Company that, at any time within the four-year period immediately before the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the outstanding voting stock of Autoscope.

 

Articles of Incorporation

 

Certain provisions of our Articles may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our Common Stock. Among other things, our Articles

·         permit our Board to authorize and issue shares of preferred stock without prior shareholder approval, commonly referred to as “blank check” preferred stock, with any rights, preferences and privileges as the Board may designate, including the right to approve an acquisition or other change in our control;

·         provide that the authorized number of directors may be increased by resolution of the Board;

·         provide that all vacancies, including newly-created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; and

·         do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of Common Stock entitled to vote in any election of directors to elect all of the directors standing for election).

 

Limitation on Liability of Directors and Indemnification

 

Our Articles limit the liability of our directors to the fullest extent permitted by the MBCA. Section 302A.251, subdivision 4 of the MBCA provides that a director’s personal liability to Autoscope or its shareholders for monetary damages for breach of fiduciary duty may be eliminated, except for liability due to:

 

	breach of the duty of loyalty to Autoscope or its shareholders;
	acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
	the unlawful payment of dividends or redemption of shares as provided in section 302A.559 of the MBCA or civil liability for securities violations under section 80A.76 of the Minnesota Statutes; or
	transactions from which our directors derived an improper personal benefit.

These limitations of liability do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission.

Our Bylaws provide that we will indemnify and advance expenses to our directors, officers and persons serving in any other capacity at our request to the fullest extent permitted by Minnesota law. Section 302A.521 of the MBCA also permits us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us. We maintain a directors’ and officers’ liability insurance policy.

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