Exhibit 10.7

PROMISSORY NOTE

 

 

 

 

 

 

 

 

Principal

Loan Date

Maturity

Loan No

Call / Coll

Account

Officer

Initials

$3,000,000.00

12-04-2007

05-31-2008

3757618353-109

 

592182

Z1154

 

References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 

 

 

 

 

Borrower:

Image Sensing Systems, Inc.
1600 University Avenue W, Ste 500
Saint Paul, MN 55104

 

Lender:

Wells Fargo Bank, National Association
McKnight Business Banking
670 McKnight Road N.
St. Paul, MN 55119

 

 

 

 

 

 

 

 

Principal Amount:   $3,000,000.00

Initial Rate:  7.500%

Date of Note:  December 4, 2007

PROMISE TO PAY. Image Sensing Systems, Inc. (“Borrower”) promises to pay to
Wells Fargo Bank, National Association (“ Lender”), or order, in lawful money of
the United States of America, the principal amount of Three Million & 00/100
Dollars ($3,000,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on May 31, 2008. In addition, Borrower will pay
regular monthly payments of all accrued unpaid interest due as of each payment
date, beginning December 30, 2007, with all subsequent interest payments to be
due on the same day of each month after that. Unless otherwise agreed or
required by applicable law, payments will be applied first to any accrued unpaid
interest; then to principal; and then to any late charges. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender’s address
shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the floating rate equal to
the Prime Rate set from time to time by Lender that serves as the basis upon
which effective rates of interest are calculated for those loans making
reference thereto (the “Index”). The Index is not necessarily the lowest rate
charged by Lender on its loans and is set by Lender in its sole discretion. If
the Index becomes unavailable during the term of this loan, Lender may designate
a substitute index after notifying Borrower. Lender will tell Borrower the
current Index rate upon Borrower’s request. The interest rate change will not
occur more often than each time the Index changes. Each change in the Prime Rate
of interest hereunder shall become effective on the date each Prime Rate change
is announced within Lender. The “initial rate” is the rate per annum which
Borrower and Lender agree shall be the initial rate of this Note, and the “Index
currently” is the Index amount upon which said initial rate is based; they do
not necessarily reflect the Index in effect on the date of this Note. Borrower
understands that Lender may make loans based on other rates as well. The Index
currently is 7.500% per annum. The interest rate to be applied to the unpaid
principal balance during this Note will be at a rate equal to the Index,
resulting in an initial rate of 7.500% per annum. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate allowed by
applicable law.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower’s obligation to continue to make payments
of accrued unpaid interest. Rather, early payments will reduce the principal
balance due. Borrower agrees not to send Lender payments marked “paid in full”,
“without recourse”, or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender’s rights under this Note, and
Borrower will remain obligated to pay any further amount owed to Lender. All
written communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes “payment in full”
of the amount owed or that is tendered with other conditions or limitations or
as full satisfaction of a disputed amount must be mailed or delivered to: Wells
Fargo Bank, National Association, 730 2nd Avenue South, Suite 1000 Minneapolis,
MN 55479.

LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $15.00,
whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, the interest rate on this Note shall be increased by adding a 4.000
percentage point margin (“Default Rate Margin”). The Default Rate Margin shall
also apply to each succeeding interest rate change that would have applied had
there been no default. However, in no event will the interest rate exceed the
maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of
Default”) under this Note:

 

 

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

 

 

Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Borrower.

 

 

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any
loan, extension of credit, security agreement, purchase or sales agreement, or
any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower’s property or Borrower’s ability to repay this
Note or perform Borrower’s obligations under this Note or any of the related
documents.

 

 

 

False Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower’s behalf under this Note or the related
documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.

 

 

 

Insolvency. The dissolution or termination of Borrower’s existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower’s property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.

 

 

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the loan. This includes a garnishment of any of
Borrower’s accounts, including deposit accounts, with Lender. However, this
Event of Default shall

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Loan No: 3757618353-109

PROMISSORY NOTE
(Continued)

Page 2

 

 

 

 

 

 

not apply if there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Borrower gives Lender written notice of the creditor or
forfeiture proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in its
sole discretion, as being an adequate reserve or bond for the dispute.

 

 

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to
any guarantor, endorser, surety, or accommodation party of any of the
indebtedness or any guarantor, endorser, surety, or accommodation party dies or
becomes incompetent, or revokes or disputes the validity of, or liability under,
any guaranty of the indebtedness evidenced by this Note.

 

 

 

Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.

 

 

 

Adverse Change. A material adverse change occurs in Borrower’s financial
condition, or Lender believes the prospect of payment or performance of this
Note is impaired.

 

 

 

Insecurity. Lender in good faith believes itself insecure.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance under this Note and all accrued unpaid interest immediately due, and
then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender’s reasonable
attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit,
including reasonable attorneys’ fees, expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction), and
appeals. If not prohibited by applicable law, Borrower also will pay any court
costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender
and, to the extent not preempted by federal law, the laws of the State of
Minnesota without regard to its conflicts of law provisions. This Note has been
accepted by Lender in the State of Minnesota.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower’s accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts, and, at Lender’s option, to
administratively freeze all such accounts to allow Lender to protect Lender’s
charge and setoff rights provided in this paragraph.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender’s office shown
above. Borrower agrees to be liable for all sums either: (A) advanced in
accordance with the instructions of an authorized person or (B) credited to any
of Borrower’s accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender’s
internal records, including daily computer print-outs.

PAYMENT DUE DATE DEFERRAL. Payment invoices will be sent on a date (the “billing
date”) which is prior to each payment due date. If this Note is booked after the
billing date for the first scheduled payment, Lender may defer each scheduled
payment date and the maturity date by one month.

FINANCIAL STATEMENTS. Borrower agrees to provide to Lender, upon request,
financial statements prepared in a manner and form acceptable to Lender, and
copies of such tax returns and other financial information and statements as may
be requested by Lender. Borrower shall also furnish such information regarding
Borrower or the Collateral as may be requested by Lender. Borrower warrants that
all financial statements and information provided to Lender are and will be
accurate, correct and complete.

AUTOMATIC DEBIT OF PAYMENTS. Borrower agrees to maintain Borrower’s deposit with
Lender, account number 3971599400, from which Lender is authorized to debit loan
payments, fees and such other sums as may be payable under the Note or related
loan documents as they become due with respect to this loan and any renewals and
extensions of this loan, and shall keep such deposit account in good standing at
all times. This authorization shall remain in full force and effect until
discontinued by Lender, or until written revocation from Borrower has been
received and processed by Lender at the address of Lender set out in the
“PREPAYMENT” or “PREPAYMENT PENALTY” paragraph of the Promissory Note. If this
authorization is revoked, or if the account is not maintained in good standing,
or if Lender is not able to collect such amounts from the account as they become
due for any reason, then Lender may increase the pre-maturity interest rate
applicable to this Credit immediately and without notice by one quarter percent
(1/4%).

PRIMARY DEPOSIT ACCOUNT. Borrower agrees to maintain Borrower’s primary deposit
account with Lender or any banking affiliate of Lender (defined as the deposit
account into which substantially all of Borrower’s receipts from its operations
are deposited and from which substantially all of Borrower’s disbursements for
its operations are made), and shall keep it at all times in good standing.

EXTENSION AND RENEWAL. Lender may, at Lender’s discretion, renew or extend this
Note by written notice (“Renewal Notice”) to Borrower. Such renewal or extension
shall be effective as of the maturity date of this Note, and may be conditioned
among other things on modification of Borrower’s obligations hereunder,
including but not limited to a decrease in the amount available under this Note,
an increase in the interest rate applicable to this Note and/or payment of a fee
for such renewal or extension. In addition, Lender may increase the principal
amount available under the Note at any time. Borrower shall be deemed to have
accepted the terms of each Renewal Notice, including any notice of an increase
in availability, if Borrower does not deliver to Lender written rejection of
such renewal or extension within 10 days following receipt of such Renewal
Notice, or if Borrower draws additional funds following the date of
notification. After any renewal or extension of Borrower’s obligations under
this Note, the term “maturity date” as used in this Note shall mean the new
maturity date set forth in the Renewal Notice. This Note may be renewed and
extended repeatedly in this manner.

LINE ADVANCES. Notwithstanding anything to the contrary, requests for advances
communicated to any office of Lender by any person believed by Lender in good
faith to be authorized to make the request, whether written, verbal, telephonic
or electronic, may be acted upon by Lender, and Borrower will be liable for sums
advanced by Lender pursuant to such request. Such requests for advances shall be
deemed authorized by Borrower, and Lender shall not be liable for such advances
made in good faith, and with respect to advances deposited to the credit of any
deposit account of Borrower, such advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. Borrower agrees to
indemnify and hold Lender harmless from and against all damages, liabilities,
costs and expenses (including attorney’s fees) arising out of any claim by
Borrower or any third party against Lender in connection with Lender’s
performance of transfers as described above.

CREDIT BUREAU INQUIRIES. The parties hereto, and each individual signing below
in a representative capacity, agree that Lender may obtain business and/or
personal credit reports and tax returns on each of them in their individual
capacities.

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Loan No: 3757618353-109

PROMISSORY NOTE
(Continued)

Page 3

 

 

 

APPLICATION OF PAYMENTS. Notwithstanding the application of payment provided in
the Payment section of this Note, unless otherwise agreed, all sums received
from Borrower may be applied to interest, fees, principal, or any other amounts
due to Lender in any order at Lender’s sole discretion. If a final payment
amount is set out in the Payment section of this Note, Borrower understands that
it is an estimate, and that the actual final payment amount will depend upon
when payments are received and other factors.

ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default described
above, the following shall be an Event of Default, if applicable: (i) any change
in ownership of an aggregate of twenty-five percent (25%) or more of the common
stock, members’ equity or other ownership interest in Borrower, (ii) the
withdrawal, resignation or expulsion of any one or more of the general partners
in Borrower with an aggregate ownership interest in Borrower of twenty-five
percent (25%) or more, or (iii) any of the preceding events occurs with respect
to any general partner of Borrower or guarantor of any indebtedness of Borrower
under this Note.

DEFAULT RATE. At Lender’s option and without prior notice, upon default or at
any time during the pendency of any event of default under this Note or any
related loan documents, Lender may increase the interest rate applicable to the
Note by four percent (4.0%) (the “Default Rate”), not to exceed the maximum
lawful rate. (If the applicable rate is a floating or variable rate, then the
Default Rate will be a varying rate equal to the sum of the normally applicable
Index and spread, plus four percent.) The Default Rate shall remain in effect
until the default has been cured and that fact has been communicated to and
confirmed by Lender. Lender shall give written notice to Borrower of Lender’s
imposition of the Default Rate. If the Note is not paid at maturity, Lender may
impose the Default Rate from the maturity date to the date paid in full without
notice. Lender’s imposition of the Default Rate shall not constitute an election
of remedies or otherwise limit Lender’s rights concerning other remedies
available to Lender as a result of the occurrence of an event of default. In the
event of a conflict between the provisions of this paragraph and any other
provision of this Note or any related agreement, the provisions of this
paragraph shall control. If a default rate is prohibited by applicable law, then
the interest rate applicable after default or maturity shall be the prematurity
rate which would be applicable in the absence of any default.

FURTHER ASSURANCES. The parties hereto agree to do all things deemed necessary
by Lender in order to fully document the loan evidenced by this Note and any
related agreements, and will fully cooperate concerning the execution and
delivery of security agreements, stock powers, instructions and/or other
documents pertaining to any collateral intended to secure the Indebtedness. The
undersigned agree to assist in the cure of any defects in the execution,
delivery or substance of the Note and related agreements, and in the creation
and perfection of any liens, security interests or other collateral rights
securing the Note.

CONSENT TO SELL LOAN. The parties hereto agree: (a) Lender may sell or transfer
all or part of this loan to one or more purchasers, whether related or unrelated
to Lender; (b) Lender may provide to any purchaser, or potential purchaser, any
information or knowledge Lender may have about the parties or about any other
matter relating to this loan obligation, and the parties waive any rights to
privacy it may have with respect to such matters; (c) the purchaser of a loan
will be considered its absolute owner and will have all the rights granted under
the loan documents or agreements governing the sale of the loan; and (d) the
purchaser of a loan may enforce its interests irrespective of any claims or
defenses that the parties may have against Lender.

FACSIMILE AND COUNTERPART. This document may be signed in any number of separate
copies, each of which shall be effective as an original, but all of which taken
together shall constitute a single document. An electronic transmission or other
facsimile of this document or any related document shall be deemed an original
and shall be admissible as evidence of the document and the signer’s execution.

ADDITIONAL SECURITY. Notwithstanding anything to the contrary in this or any
related agreement, to further secure the indebtedness and obligations of the
Note and related loan documents, Borrower pledges and grants to Lender a
security interest in Borrower’s accounts with Lender, including without
limitation, checking, savings, investment, general and special accounts, and
accounts held for safekeeping, held jointly with others, and accounts opened in
the future, excluding however all IRAs, Keogh accounts, and trust accounts to
the extent a security interest would be invalid or prohibited by law.

LOAN FEE AUTHORIZATION. Borrower shall pay to Lender any and all fees as
specified in the “Disbursement Request and Authorization” executed by Borrower
in connection with this Note. Such fees are non-refundable and shall be due and
payable in full immediately upon Borrower’s execution of this Note.

LETTERS OF CREDIT AND FOREIGN EXCHANGE. Borrower shall have available a Letter
of Credit Subfeature and a Foreign Exchange Subfeature as described in this
section, in a total amount not to exceed the available principal amount of the
line of credit evidenced by this Note.

A. Letter of Credit Subfeature. As a subfeature this Note, Lender may from time
to time issue or cause to be issued by a Wells Fargo Affiliate (such Lender or
Wells Fargo Affiliate being referred to herein as the “Issuer”) for your
account, commercial and/or standby letters of credit (each individually, a
“Letter of Credit” and collectively “Letters of Credit”); provided however, that
the form and substance of each Letter of Credit shall be subject to approval by
the Issuer in its sole discretion. Each Letter of Credit shall be issued for a
term designated by Borrower; provided however, that no Letter of Credit shall
have an expiration subsequent to the maturity of the Note. Each Letter of Credit
shall be subject to the terms and conditions of a Letter of Credit Agreement and
related documents, if any, required by Issuer in connection with the issuance of
such Letter of Credit (each individually a “Letter of Credit Agreement” and
collectively, the “Letter of Credit Agreements”). Each draft paid by Issuer
under a Letter of Credit and reimbursed by Lender shall be paid with an advance
under the Note and shall be repaid by Borrower in accordance with the terms and
conditions of the Note applicable to such advances; provided however, that if
advances under the Note are not available, for any reason whatsoever, at the
time any amount is paid by Lender, then the full amount of such advance shall be
immediately due and payable, together with interest thereon, from the date such
amount is paid by Issuer or Lender to the date such amount is fully repaid by
Borrower, at the rate of interest applicable to advances under the Note. In such
event, Borrower agrees that Issuer or Lender, at Issuer’s or Lender’s sole
discretion, may debit Borrower’s deposit account(s) with Lender or a Wells Fargo
Affiliate for the amount of any such draft. Upon the issuance of an amendment to
a Letter of Credit, upon the reimbursement by Lender of a draft under any Letter
of Credit, and otherwise as agreed by Borrower and Issuer pursuant to the Letter
of Credit Agreements, Borrower shall pay to Issuer or Lender fees determined in
accordance with Issuer’s/Lender’s standard fees and charges at such time.

B. Foreign Exchange Subfeature. As a subfeature of this Note, Lender or a Wells
Fargo Affiliate (such Lender or Wells Fargo Affiliate being referred to herein
as the “Exchanger”) may make available to Borrower a foreign exchange facility
under which Exchanger, from time to time up to and including the maturity date
of the Note, will enter into foreign exchange contracts for the account of
Borrower for the purchase and/or sale by Borrower in United States Dollars of
the foreign currency or currencies specified in the foreign exchange agreement
establishing the foreign exchange facility. Each foreign exchange transaction
shall be subject to the terms and conditions of the foreign exchange agreement,
the form and substance of which must be acceptable to the Exchanger in all
respects in its sole discretion.

C. Subfeature Limits. The outstanding amount of all Letters of Credit and
foreign exchange contracts, plus the reserve percentage applicable to foreign
exchange contracts, shall be reserved under the Note and shall not be available
for Note advances. The amount of all outstanding foreign exchange contracts plus
a reserve percentage of 20% of said amount, plus the aggregate principal amount
of all outstanding Letters of Credit, plus the principal amounts of any advances
outstanding under the Note, shall not at any time exceed the principal amount of
the Note, unless allowed by Lender at Lender’s full discretion. Any excess
amount shall be fully due and payable immediately without notice. As used
herein, Wells Fargo Affiliate means any present or future subsidiary of Wells
Fargo & Company, any subsidiary thereof, and any successors of such financial
service companies.

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Loan No: 3757618353-109

PROMISSORY NOTE
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ARBITRATION AGREEMENT. Arbitration - Binding Arbitration. Lender and each party
to this agreement hereby agree, upon demand by any party, to submit any Dispute
to binding arbitration in accordance with the terms of this Arbitration Program.
A “Dispute” shall include any dispute, claim or controversy of any kind, whether
in contract or in tort, Legal or equitable, now existing or hereafter arising,
relating in any way to this Agreement or any related agreement incorporating
this Arbitration Program (the “Documents”), or any past, present, or future
loans, transactions, contracts, agreements, relationships, incidents or injuries
of any kind whatsoever relating to or involving Business Banking, Regional
Banking, or any successor group or department of Lender. DISPUTES SUBMITTED TO
ARBITRATION ARE NOT RESOLVED IN COURT BY A JUDGE OR JURY.

Governing Rules. Any arbitration proceeding will (i) be governed by the Federal
Arbitration Act (Title 9 of the United States Code), notwithstanding any
conflicting choice of law provision in any of the documents between the parties;
and (ii) be conducted by the AAA (American Arbitration Association), or such
other administrator as the parties shall mutually agree upon, in accordance with
the AAA’s commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as
applicable, as the “Rules”). If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall control.
Arbitration proceedings hereunder shall be conducted at a location mutually
agreeable to the parties, or if they cannot agree, then at a location selected
by the AAA in the state of the applicable substantive law primarily governing
the Credit. Any party who fails or refuses to submit to arbitration following a
demand by any other party shall bear all costs and expenses incurred by such
other party in compelling arbitration of any Dispute. Arbitration may be
demanded at any time, and may be compelled by summary proceedings in Court. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief. The
arbitrator shall award all costs and expenses of the arbitration proceeding.
Nothing contained herein shall be deemed to be a waiver by any party that is a
Bank of the protections afforded to it under 12 U.S.C. °91 or any similar
applicable state law.

No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration
requirement does not limit the right of any party to (i) foreclose against real
or personal property collateral; (ii) exercise self-help remedies relating to
collateral or proceeds of collateral such as setoff or repossession; or (iii)
obtain provisional or ancillary remedies such as replevin, injunctive relief,
attachment or the appointment of a receiver, before during or after the pendency
of any arbitration proceeding. This exclusion does not constitute a waiver of
the right or obligation of any party to submit any Dispute to arbitration or
reference hereunder, including those arising from the exercise of the actions
detailed in sections (i), (ii) and (iii) of this paragraph.

Arbitrator Qualifications and Powers. Any arbitration proceeding in which the
amount in controversy is $5,000,000.00 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of
greater than $5,000,000.00. Any Dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. Every arbitrator must be a
practicing attorney or a retired member of the state or federal judiciary, in
either case with a minimum of ten years experience in the substantive law
applicable to the subject matter of the Dispute. The arbitrator will determine
whether or not an issue is arbitratable and will give effect to the statutes of
limitation in determining any claim. In any arbitration proceeding the
arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication. The arbitrator
shall resolve all Disputes in accordance with the applicable substantive law and
may grant any remedy or relief that a court of such state could order or grant
within the scope hereof and such ancillary relief as is necessary to make
effective any award. The arbitrator shall also have the power to award recovery
of all costs and fees, to impose sanctions and to take such other action as the
arbitrator deems necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the applicable State Rules of Civil Procedure,
or other applicable law. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction.

Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the Dispute being arbitrated and must be completed no later
than 20 days before the hearing date and within 180 days of the filing of the
Dispute with the AAA. Any requests for an extension of the discovery periods, or
any discovery disputes, will be subject to final determination by the arbitrator
upon a showing that the request for discovery is essential for the party’s
presentation and that no alternative means for obtaining information is
available.

Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and
the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the Dispute with the AAA. The
resolution of any Dispute shall be determined by a separate arbitration
proceeding and such Dispute shall not be consolidated with other disputes or
included in any class proceeding. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business or by applicable law or regulation. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the documents between the parties
or the subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the documents or
any relationship between the parties.

State-Specific Provisions.

If California law governs the Dispute, the following provision is included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to
the contrary, no Dispute shall be submitted to arbitration if the Dispute
concerns indebtedness secured directly or indirectly, in whole or in part, by
any real property unless the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration. If any such
Dispute is not submitted to arbitration, the Dispute shall, at the election of
any party, be referred to a referee in accordance with California Code of Civil
Procedure Section 638 et seq., and this general reference agreement is intended
to be specifically enforceable in accordance with said Section 638. A referee
with the qualifications required herein for arbitrators shall be selected
pursuant to the AAA’s selection procedures. Judgment upon the decision rendered
by a referee shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure Sections 644 and
645.

If Idaho law governs the Dispute, the following provision is included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to
the contrary, no dispute shall be submitted to arbitration if the dispute
concerns indebtedness secured directly or indirectly, in whole or in part, by
any real property unless (i) the holder of the mortgage, lien or security
interest specifically elects in writing to proceed with the arbitration, or
(iii) all parties to the arbitration waive any rights or benefits that might
accrue to them by virtue of the single action rule statute of Idaho, thereby
agreeing that all indebtedness and obligations of the parties, and all
mortgages, liens and security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable.

If Montana law governs the Dispute, the following provision is included:

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Loan No: 3757618353-109

PROMISSORY NOTE
(Continued)

Page 5

 

 

 

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to
the contrary, no dispute shall be submitted to arbitration if the dispute
concerns indebtedness secured directly or indirectly, in whole or in part, by
any real property unless (i) the holder of the mortgage, lien or security
interest specifically elects in writing to proceed with the arbitration, or (ii)
all parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Montana, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.

If Nevada law governs the Dispute, the following provision is included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to
the contrary, no dispute shall be submitted to arbitration if the dispute
concerns indebtedness secured directly or indirectly, in whole or in part, by
any real property unless (i) the holder of the mortgage, lien or security
interest specifically elects in writing to proceed with the arbitration, or (ii)
all parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Nevada, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.

If Utah law governs the Dispute, the following provision is included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to
the contrary, no Dispute shall be submitted to arbitration if the Dispute
concerns indebtedness secured directly or indirectly, in whole or in part, by
any real property unless the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration. If any such
Dispute is not submitted to arbitration, the Dispute shall, at the election of
any party, be referred to a master in accordance with Utah Rule of Civil
Procedure 53, and this general reference agreement is intended to be
specifically enforceable. A master with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA’s selection procedures.
Judgment upon the decision rendered by a master shall be entered in the court in
which such proceeding was commenced in accordance with Utah Rule of Civil
Procedure 53(e).

PRIOR NOTE. This Note is given as a replacement for and not satisfaction of Note
dated May 31, 2006 in the amount of $1,000,000.00.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower’s heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. In addition, Lender
shall have all the rights and remedies provided in the related documents or
available at law, in equity, or otherwise. Except as may be prohibited by
applicable law, all of Lender’s rights and remedies shall be cumulative and may
be exercised singularly or concurrently. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Borrower shall not
affect Lender’s right to declare a default and to exercise its rights and
remedies. Borrower and any other person who signs, guarantees or endorses this
Note, to the extent allowed by law, waive presentment, demand for payment, and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender’s security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made. The obligations under this
Note are joint and several.

SECTION DISCLOSURE. To the extent not preempted by federal law, this loan is
made under Minnesota Statutes, Section 334.01.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

IMAGE SENSING SYSTEMS, INC.

 

 

 

 

 

 

By: 

 

 

By: 

/s/ Greg Smith

 

 

Kenneth R. Aubrey, President and CEO of Image
Sensing Systems, Inc.

 

 

Gregory R. L. Smith, CFO of Image Sensing
Systems, Inc.

 

 

LASER PRO Landing, Ver. 5.38, 10.001 Copr. Harland Financial Solutions, Inc.
1997, 2007. All Rights Reserved.
MN X:\LPROD\CFI\LPL\D20.FC TR-48697 PR-689

--------------------------------------------------------------------------------

RIDER TO
PROMISSORY NOTE

          This Rider is made this 4th day of December 2007, by and between Image
Sensing Systems, Inc. (the “Borrower”) and Wells Fargo Bank, National
Association (the “Lender”).

          Reference is hereby made to that certain Promissory Note dated of even
date hereof in the original principal amount of $3,000,000.00 made between the
Borrower and the Lender. Capitalized terms not otherwise defined herein have the
same meaning as set forth in the above described Promissory Note. This Rider
shall be read consecutively with, and deemed incorporated into such Promissory
Note.

          NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, each paid to the other, it is agreed that the Promissory
Note is amended by the addition of the following:

          1. The DEFAULT section of the Promissory Note is amended by the
deleting therefrom the Change in Ownership clause as provided therein and the
following substituted therefor:

 

 

 

“Change in Ownership. Any change in ownership of forty percent
(40%) or more of the common stock of Borrower.”

          2. The ADDITIONAL EVENTS OF DEFAULT section of the Promissory Note is
amended by the deleting it in its entirety and the following substituted
therefor:

 

 

 

ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default described
above, the following shall be an Event of Default, if applicable: (i) any change
in ownership of an aggregate of forty percent (40%) or more of the common stock,
members’ equity or other ownership interest in Borrower, (ii) the withdrawal,
resignation or expulsion of any one or more of the general partners in Borrower
with an aggregate ownership interest in Borrower of forty (40%) or more, or
(iii) any of the preceding events occurs with respect to any general partner of
Borrower or guarantor of any indebtedness of Borrower under this Note.”

          Except as modified by this Rider, the Promissory Note remains
unchanged and in full force and effect.

IN WITNESS WHEREOF, the Borrower and the Lender have executed this Rider as of
the date and year first above written.

 

 

“BORROWER”

“LENDER”

 

 

IMAGE SENSING SYSTEMS, INC.

WELLS FARGO BANK,

 

NATIONAL ASSOCIATION

 

 

 

 

 

 

By: 

 

 

By: 

/s/ Christine K. Warner

 

 

Kenneth R. Aubrey

 

 

 

 

 

Its:

President and Chief Executive Officer

 

Its:

VP

 

 

 

 

 

 

 

By:

/s/ Greg Smith

 

 

 

 

Gregory R. L. Smith

 

 

 

 

 

Its:

Chief Financial Officer

 

 

 

 

Rider - Mg l3l3vl(MK)

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