UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 8-K

_____________________

CURRENT REPORT

Pursuant to Section 13 Or 15(d) of The Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported) June 4, 2020

_____________________

Image Sensing Systems, Inc.

(Exact name of registrant as specified in its charter)

 

Minnesota

000-26056

41-1519168

(State or other jurisdiction of incorporation)

(Commission File Number)

(IRS Employer Identification No.)




 

 

 

500 Spruce Tree Centre, 1600 University Avenue West, St. Paul, Minnesota

(Address of principal executive offices)

55104
(Zip Code)

 

Registrant’s telephone number, including area code (651) 603-7700

 

(Former name or former address, if changed since last report.) 

_____________________

Check the appropriate box below if the Form 8‑K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

☐              Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐              Soliciting material pursuant to Rule 14a‑12 under the Exchange Act (17 CFR 240.14a‑12)

☐              Pre‑commencement communications pursuant to Rule 14d‑2(b) under the Exchange Act (17 CFR 240.14d‑2(b))

☐              Pre‑commencement communications pursuant to Rule 13e‑4(c) under the Exchange Act (17 CFR 240.13e‑4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

ISNS

 

The Nasdaq Capital Market

Preferred Stock Purchase Rights

 

ISNS

 

The Nasdaq Capital Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

1

Section 1 - Registrant’s Business and Operations

Item 1.01.   Entry into a Material Definitive Agreement.

(a)                Effective June 4, 2020, the Special Committee (the “Committee”) of the Board of Directors (the “Board”) of Image Sensing Systems, Inc. (the “Company”) authorized and adopted a Third Amendment to Rights Agreement (the “Amendment”) to the Rights Agreement between the Company and Continental Stock Transfer & Trust Company, a New York limited‑purpose trust company, as rights agent (the “Rights Agent”), dated as of June 6, 2013 (the “Original Rights Agreement”). The Board had previously declared a dividend distribution of one right (a “Right”) for each outstanding share of the Company’s common stock, par value $0.01 per share, to shareholders of record at the close of business on June 17, 2013 pursuant to the Original Rights Agreement.  Each Right entitles the registered holder to purchase from the Company one one‑thousandth of a share of the Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company at an exercise price of $25.00 per one one‑thousandth of a Preferred Share, subject to adjustment (the “Exercise Price”). Effective on August 23, 2016, the Board authorized and adopted the First Amendment to Rights Agreement (the “First Amendment”), which was approved by the Company’s shareholders at the regular meeting of shareholders held on May 11, 2017. Effective on March 12, 2018, the Board authorized and adopted the Second Amendment to Rights Agreement (the “Second Amendment”), which was approved by the Company’s shareholders at the regular meeting of shareholders held on May 1, 2018.  (The Original Rights Agreement, as amended by the First Amendment, the Second Amendment, and the Amendment, is referred to in this Current Report on Form 8‑K as the “Rights Agreement.”) All capitalized terms used but not defined in this Current Report on Form 8‑K shall have the meanings ascribed to them in the Rights Agreement.

As the Company previously announced, the Committee was formed by the Board to conduct a comprehensive review of strategic alternatives to maximize shareholder value.  The members of the Committee consist of James W. Bracke as Chair, Paul F. Lidsky, Geoffrey C. Davis, and Joseph P. Daly, all of whom are independent directors of the Company, and Brian VanDerBosch, who is an independent consultant of the Company.

By adopting the Amendment, the Committee is helping to preserve the value of certain deferred tax benefits of the Company, including those generated by net operating losses (collectively, the “Tax Benefits”). In general terms, it works by imposing a significant penalty upon any person or group that acquires 4.99% or more of the outstanding shares of the Company’s common stock without the approval of the Board.  The Company’s ability to use these Tax Benefits would be substantially limited if it were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code (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 Amendment reduces the likelihood that changes in the Company’s investor base have the unintended effect of limiting the Company’s use of its Tax Benefits.  The Committee believes it is in the best interest of the Company and its shareholders that the Company provide for the protection of the Tax Benefits by adopting the Amendment.

The Rights Agreement is intended to act as a deterrent to any Acquiring Person (as defined below). This would protect the Tax Benefits because changes in ownership by a person owning less than 4.99% of the Company’s common stock are not included in the calculation of “ownership change” for purposes of Section 382 of the Code.  The Board has established procedures to consider requests to exempt certain acquisitions of the Company’s securities from the Rights Agreement if the Board determines that doing so would not limit or impair the availability of the Tax Benefits or is otherwise in the best interests of the Company.

The Amendment extends the expiration date of the Rights Agreement from June 5, 2020 to June 4, 2022 and is subject to the approval of the Company’s shareholders at the next meeting of the Company’s shareholders. 

2

Distribution and Transfer of Rights; Rights Certificates

Before the Distribution Date referred to below:

• the Rights are and will be evidenced by and trade with the stock certificates for the shares of the Company’s common stock (or, with respect to any uncertificated shares of common stock registered in book entry form, by notation in book entry), and no separate Rights certificates will be distributed;
• stock certificates for shares of the Company’s common stock issued after the Record Date contain a legend incorporating the Rights Agreement by reference (and, for any uncertificated shares of common stock registered in book entry form, this legend is contained in a notation in book entry);
• new Rights will accompany any new shares of the Company’s common stock issued after the Record Date; and
• the surrender for transfer of any certificates for shares of the Company’s common stock (or the surrender for transfer of any uncertificated shares of common stock registered in book entry form) will also constitute the transfer of the Rights associated with such shares.

 

Distribution Date

Subject to certain exceptions specified in the Rights Agreement, the Rights will separate from the Company’s common stock and become exercisable following (i) the 10th business day (or such later date as may be determined by the Board) after the public announcement that an Acquiring Person has acquired beneficial ownership of 4.99% or more of the Common Shares or (ii) 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 the Company’s common stock.  The date on which the Rights separate from the shares of the Company’s common stock and become exercisable is referred to as the “Distribution Date.”

After the Distribution Date, the Rights will separate from the shares of common stock and be evidenced by book‑entry credits or by Rights certificates that the Company will cause to be mailed to all eligible holders of common stock, and any Rights held by an Acquiring Person will be void and may not be exercised.

Preferred Shares Purchasable Upon Exercise of Rights

After the Distribution Date, each Right will entitle the holder to purchase, for the Exercise Price, one one‑thousandth of a Preferred Share having economic and other terms similar to that of one share of the Company’s common stock.  This portion of a Preferred Share is intended to give the shareholder approximately the same dividend, voting and liquidation rights as would one share of common stock and should approximate the value of one share of common stock.

More specifically, each one one‑thousandth of a Preferred Share, if issued, will:

•     not be redeemable;

•     entitle its holder to quarterly dividend payments of $0.001 per share, or an amount equal to the dividend paid on one share of common stock, whichever is greater;

•     entitle its holder upon liquidation either to receive $1.00 per share or an amount equal to the payment made on one share of common stock, whichever is greater;

•     have the same voting power as one share of common stock; and

•     entitle its holder to a per share payment equal to the payment made on one share of common stock, if the shares of common stock are exchanged via merger, consolidation or a similar transaction.

3

Consequences of a Person or Group Becoming an Acquiring Person

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 the Company’s common stock, other than (i) an “Exempt Person”; (ii) any shareholder that, as of the time of the first public announcement of adoption of the First Amendment, beneficially owns 4.99% or more of the Company’s common stock (unless and until such person thereafter acquires any additional shares of common stock, subject to certain exceptions); (iii) a person who becomes an Acquiring Person solely as a result of the Company repurchasing shares of its common stock; and (iv) 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 the Company, its subsidiaries and their respective employee benefit plans; and any person that the Board has affirmatively determined, in its sole discretion, prior to the Distribution Date, in light of the intent and purposes of the Rights Agreement or other circumstances facing the Company, shall not be deemed an Acquiring Person.

Flip‑In Trigger

If a person or group of affiliated or associated persons (an “Acquiring Person”) acquires beneficial ownership of 4.99% or more of the outstanding shares of the Company’s common stock, all holders of Rights may purchase, for the Exercise Price, a number of shares of common stock (or, in certain circumstances, cash, property or other securities of the Company) having a then‑current market value equal to twice the Exercise 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 the Company, as described below.

Following 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 Trigger

If, after an Acquiring Person obtains 4.99% or more of the outstanding shares of the Company’s common stock, the Company merges into another entity, an acquiring entity merges into the Company, or the Company 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 set forth above) will entitle its holder to purchase, for the Exercise 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 Exercise Price, based on the market price of the acquiring person’s stock before such transaction.

Redemption of the Rights

The Board may redeem the Rights for $0.001 per Right (payable in cash, shares of the Company’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 the Company undertakes a stock dividend or a stock split of its common stock.

Exchange

After a person or group becomes an Acquiring Person, but before an Acquiring Person beneficially owns 50% of the outstanding shares of the Company’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, the Company may elect to exchange the Rights for cash or other securities of the Company having a value approximately equal to two shares of common stock.

4

Expiration of the Rights

The Rights expire on the earliest of (i) if the Company’s shareholders do not approve the Amendment at the next meeting of the Company’s shareholders (or any adjournment or postponement thereof) by the affirmative vote of the majority of the holders of the shares of the Company’s common stock present in person or represented by proxy and voting on such matter at such meeting of shareholders (or any adjournment or postponement thereof) duly held in accordance with the Company’s Articles of Incorporation and Bylaws and applicable law, at 6:00 p.m., Eastern time, on the date of such meeting of shareholders; (ii) the time at which the Rights are redeemed or exchanged under the Rights Agreement; (iii) 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 (iv) the time at which the Board determines that the Tax Benefits are fully utilized or no longer available.  If the Company’s shareholders approve the Amendment at the meeting of the shareholders, the Rights will expire at the earliest of 6:00 p.m., Eastern time, on June 4, 2022 (unless such date is extended) and the occurrence of the other events set forth in clauses (ii) through (iv) of the foregoing sentence.

Amendment of Terms of Rights Agreement and Rights

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.

Voting Rights; Other Shareholder Rights

The Rights will not have any voting rights.  Until a Right is exercised, the holder of the Right will have no separate rights as a shareholder of the Company.

Anti‑Dilution Provisions

The Board may adjust the Exercise Price, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split or a reclassification of the Company’s Preferred Shares or shares of common stock.

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

Taxes

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.

The foregoing is a summary of the terms of the Rights Agreement.  The summary does not purport to be complete and is qualified in its entirety by reference to full text of the Amendment attached as Exhibit 4.1 and incorporated herein by reference; the full text of the Second Amendment, which was attached as Exhibit 4.1 to the Current Report on Form 8 K filed by the Company on March 12, 2018 and is incorporated herein by reference; the full text of the First Amendment, which was attached as Exhibit 4.1 to the Current Report on Form 8‑K filed by the Company on August 23, 2016 and is incorporated herein by reference; the full text of the Original Rights Agreement, which was attached as Exhibit 4.1 to the Current Report on Form 8‑K filed by the Company on June 6, 2013 and is incorporated herein by reference; and the full text of the Certificate of Designation amending the Articles of Incorporation of the Company setting forth the terms of the Preferred Shares, which was attached as Exhibit 3.1 to the Current Report on Form 8‑K filed by the Company on June 6, 2013 and is incorporated herein by reference.

5

Section 3 - Securities and Trading Markets

Item 3.03. Material Modification to Rights of Security Holders.

(a)   The information included in Item 1.01 of this Current Report on Form 8‑K is incorporated by reference into this Item 3.03(a).

Section 8 - Other Events

Item 8.01. Other Events.

On June 4, 2020, the Company issued a press release relating to the Amendment.  A copy of the press release is attached as Exhibit 99.1 and incorporated herein by reference.

Section 9 - Financial Statements and Exhibits

Item 9.01. Financial Statements and Exhibits.

(d)              Exhibits.

The following exhibits are filed with or incorporated into this Current Reports on Form 8‑K:

3.1             Certificate of Designation amending the Articles of Incorporation of Image Sensing Systems, Inc. as filed with the Minnesota Secretary of State on June 6, 2013, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8‑K dated June 6, 2013 (File No. 0‑26056).

4.1             Third Amendment to Rights Agreement dated as of June 4, 2020, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, file herewith

4.2           Second Amendment to Rights Agreement dated as of March 12, 2018, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated March 12, 2018 (File No. 0‑26056).

4.3            First Amendment to Rights Agreement dated as of August 23, 2016, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8‑K dated August 23, 2016 (File No. 026056).

4.4           Rights Agreement dated as of June 6, 2013, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8‑K dated June 6, 2013 (File No. 0‑26056).

99.1          Press Release of Image Sensing Systems, Inc. dated June 4, 2020, filed herewith.

6

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: June 4, 2020

Image Sensing Systems, Inc.

 

 

By: /s/ Frank G. Hallowell                                         

Chief Financial Officer

 


7

EXHIBIT INDEX

Exhibit

Number

 

Description

 

3.1

 

Certificate of Designation amending the Articles of Incorporation of Image Sensing Systems, Inc. as filed with the Minnesota Secretary of State on June 6, 2013, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 6, 2013 (File No. 0-26056).

 

4.1

Third Amendment to Rights Agreement dated as of June 4, 2020, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, filed herewith.

 

4.2

Second Amendment to Rights Agreement dated as of March 12, 2018, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated March 12, 2018 (File No. 0-26056).

 

4.3

First Amendment to Rights Agreement dated as of August 23, 2016, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August 23, 2016 (File No. 026056).

 

4.4

Rights Agreement dated as of June 6, 2013, by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 6, 2013 (File No. 0-26056).

 

99.1

Press Release of Image Sensing Systems, Inc. dated June 4, 2020, filed herewith.

 

8

Exhibit 4.1

IMAGE SENSING SYSTEMS, INC.

and

CONTINENTAL STOCK TRANSFER & TRUST COMPANY

as Rights Agent

THIRD AMENDMENT

TO

RIGHTS AGREEMENT

This Third Amendment to Rights Agreement (the “Amendment”) is between Image Sensing Systems, Inc., a Minnesota corporation (the “Company”), and Continental Stock Transfer & Trust Company, a New York limited-purpose trust company, as rights agent (the “Rights Agent”), and shall be effective as the 4th day of June, 2020.

WHEREAS, the Company and the Rights Agent executed and entered into that certain Rights Agreement dated as of June 6, 2013 (the “Original Rights Agreement”);

 WHEREAS, the Company and the Rights Agent executed and entered into that certain First Amendment to Rights Agreement dated as of August 23, 2016 (the “First Amendment”) and that certain Second Amendment to Rights Agreement dated as of March 12, 2018 (the “Second Amendment”) (the Original Rights Agreement, as amended by the First Amendment and the Second Amendment, the “Rights Agreement”);

 WHEREAS, Section 28 of the Rights Agreement provides that the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend any provision of the Rights Agreement without the approval of any holders of the Rights;

 WHEREAS, the Company has determined that it is necessary or desirable, in the interests of the Company and the holders of the Rights, to amend the Rights Agreement as provided herein; and

 WHEREAS, all acts and things necessary to make this Amendment a valid agreement according to its terms have been done and performed, and the execution and delivery of this Amendment by the Company and the Rights Agent have been in all respects authorized by the Company and the Rights Agent.

 NOW, THEREFORE, in consideration of the foregoing and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the Company and the Rights Agent agree as follows:

1


1.
Amendments.






1.1 Section 1(o) of the Rights Agreement is hereby amended and restated in its entirety as follows:







(o)        “Final Expiration Date” means the date upon which the Rights expire and will be (i) if the Company’s shareholders do not approve this Amendment at the next meeting of the Company’s shareholders (or any adjournment or postponement thereof) by the  affirmative vote of the majority of the Common Shares present in person or represented by proxy and voting on such matter at such meeting of shareholders (or any adjournment or postponement thereof) duly held in accordance with the Company’s Articles of Incorporation and Bylaws and applicable law, at 6:00 p.m., Eastern time, on the date of such meeting of shareholders; or (ii) if the Company’s shareholders approve this Amendment at the next meeting of the Company’s shareholders (or any adjournment or postponement thereof) by the affirmative vote of the majority of the Common Shares present in person or represented by proxy and voting on such matter at such meeting of shareholders (or any adjournment or postponement thereof) duly held in accordance with the Company’s Articles of Incorporation and Bylaws and applicable law, at 6:00 p.m., Eastern time, on June 4, 2022.  




2. 

Capitalized Terms. Capitalized terms used but not defined in this Amendment shall have the respective meanings given to them in the Rights Agreement.





3.

Effect of Amendment. It is the intent of the Company and the Rights Agent that this Amendment constitutes an amendment of the Rights Agreement as contemplated by Section 28 thereof. Except as expressly provided in this Amendment, the terms of the Rights Agreement remain in full force and effect. Unless the context clearly provides otherwise, any reference to this “Agreement” or the “Rights Agreement” shall be deemed to be a reference to the Rights Agreement as amended hereby and by the First Amendment and the Second Amendment.





4.

Benefits of this Amendment. Nothing in this Amendment shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Amendment; and this Amendment shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the Common Shares).





5.

Severability. If any term, provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

 

2


6.

Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of New York (other than its conflicts of law provisions) and shall be governed by and construed in accordance with the laws of such State applicable to contracts made and performed entirely within such State.




7.

Counterparts. This Amendment may be executed in any number of counterparts, and each of such counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. A signature to this Amendment transmitted electronically shall have the same authority, effect and enforceability as an original signature.




8.

Descriptive Headings. Descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.




[Signature page follows.]

 

3

 

[Signature Page to Third Amendment to Rights Agreement Dated as of June 4, 2020

by and between Image Sensing Systems, Inc. and Continental Stock Transfer & Trust Company]

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.


Attest:

Image Sensing Systems, Inc.





By: /s/ Chad A. Stelzig

By: /s/ Frank G. Hallowell
Name: Chad A. Stelzig
Name: Frank G. Hallowell
Title: President and Chief Executive Officer
Title: Chief Financial Officer










Attest:



Continental Stock Transfer & Trust Company





By:

/s/ Stacy Aqui

By: /s/ Henry Farrell
Name: Stacy Aqui
Name: Henry Farrell
Title: Vice President
Title: Vice President

 

4

Exhibit 99.1

GRAPHICS

NEWS RELEASE

Contact:

Frank Hallowell, Chief Financial Officer

Image Sensing Systems, Inc. Phone: 651.603.7700

 

FOR IMMEDIATE RELEASE

Image Sensing Systems Extends Tax Benefit Preservation Plan

Saint Paul, Minn., June 4, 2020 – Image Sensing Systems, Inc. (Nasdaq: ISNS) today announced that the Special Committee of its Board of Directors has approved an amendment to the Company’s shareholder rights agreement (as amended, the “Rights Agreement”).  The amendment extends the expiration date of the Rights Agreement from June 5, 2020 to June 4, 2022 and is subject to the approval of the Company’s shareholders. As Image Sensing Systems previously announced, the Special Committee was formed by the Board to conduct a comprehensive review of strategic alternatives to maximize shareholder value.  The members of the Special Committee consist of James W. Bracke as Chair, Paul F. Lidsky, Geoffrey C. Davis, and Joseph P. Daly, all of whom are independent directors of Image Sensing Systems, and Brian VanDerBosch, who is an independent consultant of Image Sensing Systems.

The Rights Agreement is designed to preserve the value of its significant net operating loss carryforwards (“NOLs”) in relation to the potential limitations under Section 382 of the Internal Revenue Code.  Image Sensing Systems had United States federal NOLs totaling approximately $18.0 million as of December 31, 2019.  Pursuant to U.S. federal income tax rules, Image Sensing Systems’ use of those tax assets could be substantially limited if it experiences an “ownership change” (as defined in Section 382 of the Internal Revenue Code).  The Company noted that the Rights Agreement is designed to serve the interests of all shareholders by helping to protect the Company’s ability to use its net operating losses to offset future tax liabilities and is similar to plans adopted by many other public companies with significant tax attributes.  The Rights Agreement will expire on the date of the next meeting of shareholders if the amendment is not approved by the Company’s shareholders at such meeting.

Details about the Rights Agreement are contained in a Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission.

1

About Image Sensing Systems

Image Sensing Systems, Inc. is a global company dedicated to helping improve safety and efficiency for cities and highways by developing and delivering above-ground detection technology, applications and solutions. We give Intelligent Transportation Systems (ITS) professionals more precise and accurate information – including real-time reaction capabilities and in-depth analytics – to make more confident and proactive decisions. We are headquartered in St. Paul, Minnesota. Visit us on the web at imagesensing.com.

Safe Harbor Statement:  Statements made in this release concerning the Company’s or management’s intentions, expectations, or predictions about future results or events are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management’s current expectations or beliefs, and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, which variations could be material and adverse. Factors that could produce such a variation include, but are not limited to, the following: the inherent unreliability of earnings, revenue and cash flow predictions due to numerous factors, many of which are beyond the Company’s control; developments in the demand for the Company’s products and services; relationships with the Company’s major customers and suppliers; the mix of and margins on the products we sell; unanticipated delays, costs and expenses inherent in the development and marketing of new products and services; adverse weather conditions in our markets; the impact of governmental laws, regulations, and orders, including as a result of the COVID-19 pandemic caused by the coronavirus; international presence; tariffs and other trade barriers; our success in integrating any acquisitions; potential disruptions to our supply chains (including disruptions caused by geopolitical events, military actions, work stoppages, nature disasters, or international health emergencies, such as the COVID-19 pandemic); and competitive factors. Our forward-looking statements speak only as of the time made, and we assume no obligation to publicly update any such statements. Additional information concerning these and other factors that could cause actual results and events to differ materially from the Company’s current expectations are contained in the Company’s reports and other documents filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 12, 2020.

2