**Exhibit 10.2**

 

**REGISTRATIONRIGHTS AGREEMENT**

This RegistrationRights Agreement (the “Agreement”) is made and entered into as of this 28th day of September, 2006 by and among Iteris,Inc., a Delaware corporation (the “Company”), and the “Funds” named in thatcertain Warrant Exercise Agreement by and among the Company and the Funds (the “WarrantExercise Agreement”).

The parties herebyagree as follows:

##### 1.             CertainDefinitions.

As used in thisAgreement, the following terms shall have the following meanings:

“Affiliate”means, with respect to any person, any other person which directly orindirectly controls, is controlled by, or is under common control with, suchperson.

“Business Day”means a day, other than a Saturday or Sunday, on which banks in New York Cityare open for the general transaction of business.

“Common Stock”shall mean the Company’s common stock, par value $0.10 per share, and anysecurities into which such shares may hereinafter be reclassified.

“Investors”shall mean the Funds identified in the Warrant Exercise Agreement and anyAffiliate or permitted transferee of any Investor who is a subsequent holder ofany Warrants or Registrable Securities.

“Prospectus”shall mean (i) the prospectus included in any Registration Statement, asamended or supplemented by any prospectus supplement, with respect to the termsof the offering of any portion of the Registrable Securities covered by suchRegistration Statement and by all other amendments and supplements to theprospectus, including post-effective amendments and all material incorporatedby reference in such prospectus, and (ii) any “free writing prospectus” asdefined in Rule 405 under the 1933 Act.

“Register,”“registered” and “registration” refer to a registration made bypreparing and filing a Registration Statement or similar document in compliancewith the 1933 Act (as defined below), and the declaration or ordering ofeffectiveness of such Registration Statement or document.

“RegistrableSecurities” shall mean (i) the Warrant Shares and (ii) any other securitiesissued or issuable with respect to or in exchange for Registrable Securities;provided, that, a security shall cease to be a Registrable Security upon (A)sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or (B)such security becoming eligible for sale by the Investors pursuant to Rule144(k).

“RegistrationStatement” shall mean any registration statement of the Company filed underthe 1933 Act that covers the resale of any of the Registrable Securitiespursuant to the provisions of this Agreement, amendments and supplements tosuch Registration Statement, including post-effective amendments, all exhibitsand all material incorporated by reference in such Registration Statement.

“RequiredInvestors” means the Investors holding a majority of the RegistrableSecurities.

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“SEC” meansthe U.S. Securities and Exchange Commission.

“1933 Act”means the Securities Act of 1933, as amended, and the rules and regulationspromulgated thereunder.

“1934 Act”means the Securities Exchange Act of 1934, as amended, and the rules andregulations promulgated thereunder.

“Warrants”means, the warrants to purchase shares of Common Stock issued to the Investorspursuant to the Warrant Exercise Agreement.

“Warrant Shares”means the shares of Common Stock issuable upon the exercise of the Warrants.

##### 2.             Registration.

(a)      RegistrationStatements.

(i)       Promptlyfollowing the closing of the transactions contemplated by the Warrant ExerciseAgreement (the “Closing Date”) but no later than sixty (60) days after theClosing Date (the “Filing Deadline”), the Company shall prepare and file withthe SEC one Registration Statement on Form S-3 (or, if Form S-3 is not thenavailable to the Company, on such form of registration statement as is thenavailable to effect a registration for resale of the Registrable Securities,subject to the Required Investors’ consent, which shall not be unreasonablywithheld), covering the resale of the Registrable Securities in an amount atleast equal to the Warrant Shares set forth on the face of the Warrants.  Subject to any SEC comments, suchRegistration Statement shall include the plan of distribution attached heretoas Exhibit A.  Such RegistrationStatement also shall cover, to the extent allowable under the 1933 Act and therules promulgated thereunder (including Rule 416), such indeterminate number ofadditional shares of Common Stock resulting from stock splits, stock dividendsor similar transactions with respect to the Registrable Securities.  Such Registration Statement shall not includeany shares of Common Stock or other securities for the account of any otherholder without the prior written consent of the Required Investors.  The Registration Statement (and each amendmentor supplement thereto, and each request for acceleration of effectivenessthereof) shall be provided in accordance with Section 3(c) to the Investors andtheir counsel prior to its filing or other submission.  If a Registration Statement covering the RegistrableSecurities is not filed with the SEC on or prior to the Filing Deadline, theCompany will make pro rata payments to each Investor, as liquidated damages andnot as a penalty, in an amount equal to 1.0% of the aggregate exercise price ofthe Warrants acquired by such Investor for each 30-day period or pro rata forany portion thereof following the Filing Deadline for which no RegistrationStatement is filed with respect to the Registrable Securities.  Such payments shall constitute the Investors’exclusive monetary remedy for such events, but shall not affect the right ofthe Investors to seek injunctive relief. Such payments shall be made to each Investor in cash.

(ii)      AdditionalRegistrable Securities.  Upon thewritten demand of any Investor and upon any change in the Warrant Price (asdefined in the Warrant) such that additional shares of Common Stock becomeissuable upon the exercise of the Warrants (the “Additional Shares”), theCompany shall prepare and file with the SEC one or more Registration Statementson Form S-3 or amend the Registration Statement filed pursuant to clause (i)above, if such Registration Statement has not previously been declaredeffective (or, if Form S-3 is not

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then available tothe Company, on such form of registration statement as is then available toeffect a registration for resale of the Additional Shares, subject to theRequired Investors’ consent, which shall not be unreasonably withheld) coveringthe resale of the Additional Shares, but only to the extent the AdditionalShares are not at the time covered by an effective Registration Statement.  Subject to any SEC comments, suchRegistration Statement shall include the plan of distribution attached heretoas Exhibit A.  Such RegistrationStatement also shall cover, to the extent allowable under the 1933 Act and therules promulgated thereunder (including Rule 416), such indeterminate number ofadditional shares of Common Stock resulting from stock splits, stock dividendsor similar transactions with respect to the Additional Shares.  Such Registration Statement shall not includeany shares of Common Stock or other securities for the account of any otherholder without the prior written consent of the Required Investors.  The Registration Statement (and eachamendment or supplement thereto, and each request for acceleration ofeffectiveness thereof) shall be provided in accordance with Section 3(c) to theInvestors and their counsel prior to its filing or other submission.  If a Registration Statement covering the AdditionalShares is required to be filed under this Section 2(a)(ii) and is not filedwith the SEC within thirty (30) days of the request of any Investor or upon theoccurrence of any of the events specified in this Section 2(a)(ii), the Companywill make pro rata payments to each Investor, as liquidated damages and not asa penalty, in an amount equal to 1.0% of the aggregate exercise price of theWarrants acquired by such Investor for each 30-day period or pro rata for anyportion thereof following the date by which such Registration Statement shouldhave been filed for which no Registration Statement is filed with respect tothe Additional Shares.  Such paymentsshall constitute the Investors’ exclusive monetary remedy for such events, butshall not affect the right of the Investors to seek injunctive relief.  Such payments shall be made to each Investorin cash.

(b)      Expenses.  The Company will pay all expenses associatedwith each registration, including filing and printing fees, the Company’scounsel and accounting fees and expenses, costs associated with clearing theRegistrable Securities for sale under applicable state securities laws, listingfees, fees and expenses of one counsel to the Investors, not to exceed $5,000,and the Investors’ reasonable out-of-pocket expenses in connection with theregistration, but excluding discounts, commissions, fees of underwriters,selling brokers, dealer managers or similar securities industry professionalswith respect to the Registrable Securities being sold.

(c)      Effectiveness.

(i)       TheCompany shall use commercially reasonable efforts to have the RegistrationStatement declared effective as soon as practicable.  The Company shall notify the Investors byfacsimile or e-mail as promptly as practicable, and in any event, withintwenty-four (24) hours, after any Registration Statement is declared effectiveand shall provide the Investors promptly thereafter with copies of any relatedProspectus to be used in connection with the sale or other disposition of thesecurities covered thereby.  If (A)(x) aRegistration Statement covering the Registrable Securities is not declaredeffective by the SEC on or prior to the earlier of (i) five (5) Business Daysafter the SEC shall have informed the Company that no review of theRegistration Statement will be made or that the SEC has no further comments onthe Registration Statement or (ii) the 120th day after the Closing Date (150 days after theClosing Date in the event that the Registration Statement is reviewed by theSEC) or (y) a Registration Statement covering Additional Shares is not declaredeffective by the SEC within 60 days (90

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days in the eventthat the Registration Statement is reviewed by the SEC) following the time suchRegistration Statement was required to be filed pursuant to Section 2(a)(ii),or (B) after a Registration Statement has been declared effective by the SEC,sales cannot be made pursuant to such Registration Statement for any reason(including without limitation by reason of a stop order, or the Company’sfailure to update the Registration Statement), but excluding the inability ofany Investor to sell the Registrable Securities covered thereby due to marketconditions and except as excused pursuant to subparagraph (ii) below, then theCompany will make pro rata payments to each Investor, as liquidated damages andnot as a penalty, in an amount equal to 1.0% of the aggregate exercise price ofthe Warrants acquired by such Investor for each 30- day period or pro rata forany portion thereof following the date by which such Registration Statement shouldhave been effective (the “Blackout Period”). Such payments shall constitute the Investors’ exclusive monetary remedyfor such events, but shall not affect the right of the Investors to seekinjunctive relief.  The amounts payableas liquidated damages pursuant to this paragraph shall be paid monthly withinthree (3) Business Days of the last day of each month following thecommencement of the Blackout Period until the termination of the BlackoutPeriod.  Such payments shall be made toeach Investor in cash.

(ii)      For notmore than twenty (20) consecutive days or for a total of not more thanforty-five (45) days in any twelve (12) month period, the Company may delay thedisclosure of material non-public information concerning the Company, bysuspending the use of any Prospectus included in any registration contemplatedby this Section containing such information, the disclosure of which at thetime is not, in the good faith opinion of the Company, in the best interests ofthe Company (an “Allowed Delay”); provided, that the Company shall promptly (a)notify the Investors in writing of the existence of (but in no event, withoutthe prior written consent of an Investor, shall the Company disclose to suchInvestor any of the facts or circumstances regarding) material non-publicinformation giving rise to an Allowed Delay, (b) advise the Investors inwriting to cease all sales under the Registration Statement until the end ofthe Allowed Delay and (c) use commercially reasonable efforts to resolve thecircumstances leading to the imposition of an Allowed Delay as promptly aspracticable.

(d)      Limitationon Liquidated Damages. Notwithstanding any other provision of this Agreement, in no event shallthe Company be liable for liquidated damages pursuant to this Agreement inexcess of an aggregate of 12% of the aggregate exercise price of the Warrants.

##### 3.             CompanyObligations.  The Company will usecommercially reasonable efforts to effect the registration of the RegistrableSecurities in accordance with the terms hereof, and pursuant thereto theCompany will, as expeditiously as possible:

(a)      usecommercially reasonable efforts to cause such Registration Statement to becomeeffective and to remain continuously effective for a period that will terminateupon the earlier of (i) the date on which all Registrable Securities covered bysuch Registration Statement as amended from time to time, have been sold, and(ii) the date on which all Registrable Securities covered by such RegistrationStatement may be sold pursuant to Rule 144(k) (such period, the “EffectivenessPeriod”) and advise the Investors in writing prior to terminating theeffectiveness of the Registration Statement following the conclusion of theEffectiveness Period;

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(b)      prepareand file with the SEC such amendments and post-effective amendments to theRegistration Statement and the Prospectus as may be necessary to keep theRegistration Statement effective for the Effectiveness Period and to complywith the provisions of the 1933 Act and the 1934 Act with respect to thedistribution of all of the Registrable Securities covered thereby;

(c)      providecopies to and permit counsel designated by the Investors to review eachRegistration Statement and all amendments and supplements thereto no fewer thanseven (7) days prior to their filing with the SEC and not file any document towhich such counsel reasonably objects;

(d)      furnishto the Investors and their legal counsel by e-mail, facsimile or otherequivalent method (i) promptly after the same is prepared and publiclydistributed, filed with the SEC, or received by the Company (but not later thantwo (2) Business Days after the filing date, receipt date or sending date, asthe case may be) one (1) copy of any Registration Statement and any amendmentthereto, each preliminary prospectus and Prospectus and each amendment orsupplement thereto, and each letter written by or on behalf of the Company tothe SEC or the staff of the SEC, and each item of correspondence from the SECor the staff of the SEC, in each case relating to such Registration Statement(other than any portion of any thereof which contains information for which theCompany has sought confidential treatment), and (ii) such number of copies of aProspectus, including a preliminary prospectus, and all amendments andsupplements thereto and such other documents as each Investor may reasonablyrequest in order to facilitate the disposition of the Registrable Securitiesowned by such Investor that are covered by the related Registration Statement;

(e)      usecommercially reasonable efforts to (i) prevent the issuance of any stop orderor other suspension of effectiveness and, (ii) if such order is issued, obtainthe withdrawal of any such order at the earliest possible moment;

(f)       priorto any public offering of Registrable Securities, use commercially reasonableefforts to register or qualify or cooperate with the Investors and theircounsel in connection with the registration or qualification of suchRegistrable Securities for offer and sale under the securities or blue sky lawsof such jurisdictions requested by the Investors and do any and all othercommercially reasonable acts or things necessary or advisable to enable thedistribution in such jurisdictions of the Registrable Securities covered by theRegistration Statement; provided, however, that the Company shall not berequired in connection therewith or as a condition thereto to (i) qualify to dobusiness in any jurisdiction where it would not otherwise be required toqualify but for this Section 3(f), (ii) subject itself to general taxation inany jurisdiction where it would not otherwise be so subject but for thisSection 3(f), or (iii) file a general consent to service of process in any suchjurisdiction;

(g)      usecommercially reasonable efforts to cause all Registrable Securities covered bya Registration Statement to be listed on each securities exchange, interdealerquotation system or other market on which similar securities issued by theCompany are then listed;

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(h)      immediatelynotify the Investors, at any time prior to the end of the Effectiveness Period,upon discovery that, or upon the happening of any event as a result of which,the Prospectus includes an untrue statement of a material fact or omits tostate any material fact required to be stated therein or necessary to make thestatements therein not misleading in light of the circumstances then existing,and promptly prepare, file with the SEC and furnish to such holder a supplementto or an amendment of such Prospectus as may be necessary so that suchProspectus shall not include an untrue statement of a material fact or omit tostate a material fact required to be stated therein or necessary to make thestatements therein not misleading in light of the circumstances then existing;and

(i)       otherwiseuse commercially reasonable efforts to comply with all applicable rules andregulations of the SEC under the 1933 Act and the 1934 Act, including, withoutlimitation, Rule 172 under the 1933 Act, file any final Prospectus, includingany supplement or amendment thereof, with the SEC pursuant to Rule 424 underthe 1933 Act, promptly inform the Investors in writing if, at any time duringthe Effectiveness Period, the Company does not satisfy the conditions specifiedin Rule 172 and, as a result thereof, the Investors are required to deliver aProspectus in connection with any disposition of Registrable Securities andtake such other actions as may be reasonably necessary to facilitate theregistration of the Registrable Securities hereunder; and make available to itssecurity holders, as soon as reasonably practicable, but not later than theAvailability Date (as defined below), an earnings statement covering a periodof at least twelve (12) months, beginning after the effective date of eachRegistration Statement, which earnings statement shall satisfy the provisionsof Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder(for the purpose of this subsection 3(i), “Availability Date” means the 45thday following the end of the fourth fiscal quarter that includes the effectivedate of such Registration Statement, except that, if such fourth fiscal quarteris the last quarter of the Company’s fiscal year, “Availability Date” means the90th day after the end of such fourth fiscal quarter).

(j)       With a view to making available to theInvestors the benefits of Rule 144 (or its successor rule) and any other ruleor regulation of the SEC that may at any time permit the Investors to sell theshares of Common Stock to the public without registration, the Companycovenants and agrees to:  (i) make andkeep public information available, as those terms are understood and defined inRule 144, until the earlier of (A) six months after such date as all of theRegistrable Securities may be resold pursuant to Rule 144(k) or any other ruleof similar effect or (B) such date as all of the Registrable Securities shallhave been resold; (ii) file with the SEC in a timely manner all reports andother documents required of the Company under the 1934 Act; and (iii) furnishto each Investor upon request, as long as such Investor owns any RegistrableSecurities, (A) a written statement by the Company that it has complied withthe reporting requirements of the 1934 Act, (B) a copy of the Company’s mostrecent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C)such other information as may be reasonably requested in order to avail suchInvestor of any rule or regulation of the SEC that permits the selling of anysuch Registrable Securities without registration.

##### 4.             DueDiligence Review; Information.  TheCompany shall make available, during normal business hours, for inspection andreview by the Investors, advisors to and representatives of the Investors (whomay or may not be affiliated with the Investors and who are reasonablyacceptable to the Company), all financial and other records, all filings withthe SEC,

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##### and all other corporate documents and properties of the Company as maybe reasonably necessary for the purpose of such review, and cause the Company’sofficers, directors and employees, within a reasonable time period, to supplyall such information reasonably requested by the Investors or any suchrepresentative, advisor or underwriter in connection with such RegistrationStatement (including, without limitation, in response to all questions andother inquiries reasonably made or submitted by any of them), prior to and fromtime to time after the filing and effectiveness of the Registration Statementfor the sole purpose of enabling the Investors and such representatives,advisors and underwriters and their respective accountants and attorneys toconduct initial and ongoing due diligence with respect to the Company and theaccuracy of such Registration Statement.

The Company shallnot disclose material nonpublic information to the Investors, or to advisors toor representatives of the Investors, unless prior to disclosure of suchinformation the Company identifies such information as being material nonpublicinformation and provides the Investors, such advisors and representatives withthe opportunity to accept or refuse to accept such material nonpublicinformation for review and any Investor wishing to obtain such informationenters into an appropriate confidentiality agreement with the Company with respectthereto.

##### 5.             Obligationsof the Investors.

(a)      EachInvestor shall furnish in writing to the Company such information regardingitself, the Registrable Securities held by it and the intended method ofdisposition of the Registrable Securities held by it, as shall be reasonablyrequired to effect the registration of such Registrable Securities and shallexecute such documents in connection with such registration as the Company mayreasonably request.  At least five (5)Business Days prior to the first anticipated filing date of any RegistrationStatement, the Company shall notify each Investor of the information theCompany requires from such Investor if such Investor elects to have any of theRegistrable Securities included in the Registration Statement.  An Investor shall provide such information tothe Company at least two (2) Business Days prior to the first anticipatedfiling date of such Registration Statement if such Investor elects to have anyof the Registrable Securities included in the Registration Statement.

(b)      EachInvestor, by its acceptance of the Registrable Securities agrees to cooperatewith the Company as reasonably requested by the Company in connection with thepreparation and filing of a Registration Statement hereunder, unless such Investorhas notified the Company in writing of its election to exclude all of itsRegistrable Securities from such Registration Statement.

(c)      EachInvestor agrees that, upon receipt of any notice from the Company of either (i)the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) thehappening of an event pursuant to Section 3(h) hereof, such Investor willimmediately discontinue disposition of Registrable Securities pursuant to theRegistration Statement covering such Registrable Securities, until the Investoris advised by the Company that such dispositions may again be made.

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##### 6.             Indemnification.

(a)      Indemnificationby the Company.  The Company willindemnify and hold harmless each Investor and its officers, directors, members,employees and agents, successors and assigns, and each other person, if any,who controls such Investor within the meaning of the 1933 Act, against anylosses, claims, damages or liabilities, joint or several, to which they maybecome subject under the 1933 Act or otherwise, insofar as such losses, claims,damages or liabilities (or actions in respect thereof) arise out of or arebased upon: (i) any untrue statement or alleged untrue statement of anymaterial fact contained in any Registration Statement, any preliminaryProspectus or final Prospectus, or any amendment or supplement thereof; (ii)any blue sky application or other document executed by the Company specificallyfor that purpose or based upon written information furnished by the Companyfiled in any state or other jurisdiction in order to qualify any or all of theRegistrable Securities under the securities laws thereof (any such application,document or information herein called a **“**Blue SkyApplication**”**); (iii) the omission or allegedomission to state therein a material fact required to be stated therein ornecessary to make the statements therein not misleading; (iv) any violation bythe Company or its agents of any rule or regulation promulgated under the 1933Act applicable to the Company or its agents and relating to action or inactionrequired of the Company in connection with such registration; or (v) anyfailure to register or qualify the Registrable Securities included in any suchRegistration in any state where the Company or its agents has affirmativelyundertaken or agreed in writing that the Company will undertake suchregistration or qualification on an Investor’s behalf and will reimburse suchInvestor, and each such officer, director or member and each such controllingperson for any legal or other expenses reasonably incurred by them inconnection with investigating or defending any such loss, claim, damage,liability or action; provided, however, that the Company will notbe liable in any such case if and to the extent that any such loss, claim,damage or liability arises out of or is based upon an untrue statement oralleged untrue statement or omission or alleged omission so made in conformitywith information furnished by such Investor or any such controlling person inwriting specifically for use in such Registration Statement or Prospectus.

(b)      Indemnificationby the Investors.  Each Investoragrees, severally but not jointly, to indemnify and hold harmless, to thefullest extent permitted by law, the Company, its directors, officers, employees,stockholders and each person who controls the Company (within the meaning ofthe 1933 Act) against any losses, claims, damages, liabilities and expense(including reasonable attorney fees) resulting from any untrue statement of amaterial fact or any omission of a material fact required to be stated in theRegistration Statement or Prospectus or preliminary Prospectus or amendment orsupplement thereto or necessary to make the statements therein not misleading,to the extent, but only to the extent that such untrue statement or omission iscontained in any information furnished in writing by such Investor to theCompany specifically for inclusion in such Registration Statement or Prospectusor amendment or supplement thereto.  Inno event shall the liability of an Investor be greater in amount than thedollar amount of the proceeds (net of all expense paid by such Investor inconnection with any claim relating to this Section 6 and the amount of anydamages such Investor has otherwise been required to pay by reason of suchuntrue statement or omission) received by such Investor upon the sale of theRegistrable Securities included in the Registration Statement giving rise tosuch indemnification obligation.

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(c)      Conductof Indemnification Proceedings.  Anyperson entitled to indemnification hereunder shall (i) give prompt notice tothe indemnifying party of any claim with respect to which it seeksindemnification and (ii) permit such indemnifying party to assume the defenseof such claim with counsel reasonably satisfactory to the indemnified party; providedthat any person entitled to indemnification hereunder shall have the right toemploy separate counsel and to participate in the defense of such claim, butthe fees and expenses of such counsel shall be at the expense of such personunless (a) the indemnifying party has agreed to pay such fees or expenses, or(b) the indemnifying party shall have failed to assume the defense of suchclaim and employ counsel reasonably satisfactory to such person or (c) in thereasonable judgment of any such person, based upon written advice of itscounsel, a conflict of interest exists between such person and the indemnifyingparty with respect to such claims (in which case, if the person notifies theindemnifying party in writing that such person elects to employ separatecounsel at the expense of the indemnifying party, the indemnifying party shallnot have the right to assume the defense of such claim on behalf of suchperson); and provided, further, that the failure of anyindemnified party to give notice as provided herein shall not relieve theindemnifying party of its obligations hereunder, except to the extent that suchfailure to give notice shall materially adversely affect the indemnifying partyin the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connectionwith any proceeding in the same jurisdiction, be liable for fees or expenses ofmore than one separate firm of attorneys at any time for all such indemnifiedparties.  No indemnifying party will,except with the consent of the indemnified party, consent to entry of anyjudgment or enter into any settlement that does not include as an unconditionalterm thereof the giving by the claimant or plaintiff to such indemnified partyof a release from all liability in respect of such claim or litigation.

(d)      Contribution.  If for any reason the indemnificationprovided for in the preceding paragraphs (a) and (b) is unavailable to anindemnified party or insufficient to hold it harmless, other than as expresslyspecified therein, then the indemnifying party shall contribute to the amountpaid or payable by the indemnified party as a result of such loss, claim,damage or liability in such proportion as is appropriate to reflect therelative fault of the indemnified party and the indemnifying party, as well asany other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning ofSection 11(f) of the 1933 Act shall be entitled to contribution from any personnot guilty of such fraudulent misrepresentation.  In no event shall the contribution obligationof a holder of Registrable Securities be greater in amount than the dollaramount of the proceeds (net of all expenses paid by such holder in connectionwith any claim relating to this Section 6 and the amount of any damages suchholder has otherwise been required to pay by reason of such untrue or allegeduntrue statement or omission or alleged omission) received by it upon the saleof the Registrable Securities giving rise to such contribution obligation.

##### 7.             Miscellaneous.

(a)      Amendmentsand Waivers.  This Agreement may beamended only by a writing signed by the Company and the RequiredInvestors.  The Company may take any actionherein prohibited, or omit to perform any act herein required to be performedby it, only if the Company shall have obtained the written consent to suchamendment, action or omission to act, of the Required Investors.

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(b)      Notices.  Unless otherwise provided herein, all noticesand other communications provided for or permitted hereunder shall be made asset forth in the Warrant Exercise Agreement.

(c)      Assignmentsand Transfers by Investors.  Theprovisions of this Agreement shall be binding upon and inure to the benefit ofthe Investors and their respective successors and assigns.  An Investor may transfer or assign, in wholeor from time to time in part, to one or more persons its rights hereunder inconnection with the transfer of Registrable Securities by such Investor to suchperson, provided that such Investor complies with all laws applicable theretoand provides written notice of assignment to the Company promptly after suchassignment is effected and such transferee agrees to be bound by the terms andconditions of this Agreement.

(d)      Assignmentsand Transfers by the Company.  ThisAgreement may not be assigned by the Company (whether by operation of law orotherwise) without the prior written consent of the Required Investors,provided, however, that the Company may assign its rights and delegate itsduties hereunder to any surviving or successor corporation in connection with amerger or consolidation of the Company with another corporation, or a sale,transfer or other disposition of all or substantially all of the Company’sassets to another corporation, without the prior written consent of theRequired Investors, after notice duly given by the Company to each Investor.

(e)      Benefitsof the Agreement.  The terms andconditions of this Agreement shall inure to the benefit of and be binding uponthe respective permitted successors and assigns of the parties.  Nothing in this Agreement, express orimplied, is intended to confer upon any party other than the parties hereto ortheir respective successors and assigns any rights, remedies, obligations, orliabilities under or by reason of this Agreement, except as expressly providedin this Agreement.

(f)       Counterparts;Faxes.  This Agreement may beexecuted in two or more counterparts, each of which shall be deemed anoriginal, but all of which together shall constitute one and the sameinstrument.  This Agreement may also beexecuted via facsimile, which shall be deemed an original.

(g)      Titlesand Subtitles.  The titles andsubtitles used in this Agreement are used for convenience only and are not tobe considered in construing or interpreting this Agreement.

(h)      Severability.  Any provision of this Agreement that isprohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,be ineffective to the extent of such prohibition or unenforceability withoutinvalidating the remaining provisions hereof but shall be interpreted as if itwere written so as to be enforceable to the maximum extent permitted by applicablelaw, and any such prohibition or unenforceability in any jurisdiction shall notinvalidate or render unenforceable such provision in any otherjurisdiction.  To the extent permitted byapplicable law, the parties hereby waive any provision of law which renders anyprovisions hereof prohibited or unenforceable in any respect.

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(i)       FurtherAssurances.  The parties shallexecute and deliver all such further instruments and documents and take allsuch other actions as may reasonably be required to carry out the transactionscontemplated hereby and to evidence the fulfillment of the agreements hereincontained.

(j)       EntireAgreement.  This Agreement isintended by the parties as a final expression of their agreement and intendedto be a complete and exclusive statement of the agreement and understanding ofthe parties hereto in respect of the subject matter contained herein.  This Agreement supersedes all prioragreements and understandings between the parties with respect to such subjectmatter.

(k)      GoverningLaw; Consent to Jurisdiction; Waiver of Jury Trial.  This Agreement shall be governed by, andconstrued in accordance with, the internal laws of the State of New Yorkwithout regard to the choice of law principles thereof.  Each of the parties hereto irrevocablysubmits to the exclusive jurisdiction of the courts of the State of New Yorklocated in New York County and the United States District Court for theSouthern District of New York for the purpose of any suit, action, proceedingor judgment relating to or arising out of this Agreement and the transactionscontemplated hereby.  Service of processin connection with any such suit, action or proceeding may be served on eachparty hereto anywhere in the world by the same methods as are specified for thegiving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction ofany such court in any such suit, action or proceeding and to the laying ofvenue in such court.  Each party heretoirrevocably waives any objection to the laying of venue of any such suit,action or proceeding brought in such courts and irrevocably waives any claimthat any such suit, action or proceeding brought in any such court has beenbrought in an inconvenient forum. ** EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TOREQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT ANDREPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.**

*[SignaturePage Follows]*

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IN WITNESSWHEREOF, the parties have executed this Agreement or caused their dulyauthorized officers to execute this Agreement as of the date first abovewritten.
| The Company:   | ITERIS, INC.                                 |
|----------------|----------------------------------------------|
|           |                                         |   |
|           |                                         |   |
|           | By:                                          |      /S/ JAMES S. MIELE |   |
|           | Name:                                        | James S. Miele |   |
|           | Title:                                       | CFO |   |
|           |                                         |   |
| The Investors: | SPECIAL SITUATIONS FUND III QP, L.P.         |
|           |                                         |   |
|           |                                         |   |
|           | By:                                          | /S/ AUSTIN W.  MARXE |   |
|           | Name: Austin W. Marxe                        |
|           | Title: General Partner                       |
|           |                                         |   |
|           | SPECIAL SITUATIONS FUND III, L.P.            |
|           |                                         |   |
|           |                                         |   |
|           | By:                                          | /S/ AUSTIN W.  MARXE |   |
|           | Name: Austin W. Marxe                        |
|           | Title: General Partner                       |
|           |                                         |   |
|           | SPECIAL SITUATIONS CAYMAN FUND, L.P.         |
|           |                                         |   |
|           |                                         |   |
|           | By:                                          | /S/ AUSTIN W.  MARXE |   |
|           | Name: Austin W. Marxe                        |
|           | Title: General Partner                       |
|           |                                         |   |
|           | SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P. |
|           |                                         |   |
|           |                                         |   |
|           | By:                                          | /S/ AUSTIN W.  MARXE |   |
|           | Name: Austin W. Marxe                        |
|           | Title: General Partner                       |
|                |                                              |  |  |  |  |

 

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Exhibit A

**Planof Distribution**

Theselling stockholders, which as used herein includes donees, pledgees,transferees or other successors-in-interest selling shares of common stock orinterests in shares of common stock received after the date of this prospectusfrom a selling stockholder as a gift, pledge, partnership distribution or othertransfer, may, from time to time, sell, transfer or otherwise dispose of any orall of their shares of common stock or interests in shares of common stock onany stock exchange, market or trading facility on which the shares are tradedor in private transactions.  Thesedispositions may be at fixed prices, at prevailing market prices at the time ofsale, at prices related to the prevailing market price, at varying prices determinedat the time of sale, or at negotiated prices.

Theselling stockholders may use any one or more of the following methods whendisposing of shares or interests therein:

·      ordinary brokerage transactions andtransactions in which the broker-dealer solicits purchasers;

·      block trades in which the broker-dealerwill attempt to sell the shares as agent, but may position and resell a portionof the block as principal to facilitate the transaction;

·      purchasesby a broker-dealer as principal and resale by the broker-dealer for itsaccount;

·      anexchange distribution in accordance with the rules of the applicable exchange;

·      privatelynegotiated transactions;

·      shortsales effected after the date the registration statement of which thisProspectus is a part is declared effective by the SEC;

·      throughthe writing or settlement of options or other hedging transactions, whetherthrough an options exchange or otherwise;

·      broker-dealersmay agree with the selling stockholders to sell a specified number of such sharesat a stipulated price per share; and

·      acombination of any such methods of sale.

The sellingstockholders may, from time to time, pledge or grant a security interest insome or all of the shares of common stock owned by them and, if they default inthe performance of their secured obligations, the pledgees or secured partiesmay offer and sell the shares of common stock, from time to time, under thisprospectus, or under an amendment to this prospectus under Rule 424(b)(3) orother applicable provision of the Securities Act amending the list of sellingstockholders to include the pledgee, transferee or other successors in interestas 

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selling stockholdersunder this prospectus.  The sellingstockholders also may transfer the shares of common stock in othercircumstances, in which case the transferees, pledgees or other successors ininterest will be the selling beneficial owners for purposes of this prospectus.

In connection withthe sale of our common stock or interests therein, the selling stockholders mayenter into hedging transactions with broker-dealers or other financialinstitutions, which may in turn engage in short sales of the common stock inthe course of hedging the positions they assume.  The selling stockholders may also sell sharesof our common stock short and deliver these securities to close out their shortpositions, or loan or pledge the common stock to broker-dealers that in turnmay sell these securities.  The sellingstockholders may also enter into option or other transactions withbroker-dealers or other financial institutions or the creation of one or morederivative securities which require the delivery to such broker-dealer or otherfinancial institution of shares offered by this prospectus, which shares suchbroker-dealer or other financial institution may resell pursuant to thisprospectus (as supplemented or amended to reflect such transaction).

The aggregateproceeds to the selling stockholders from the sale of the common stock offeredby them will be the purchase price of the common stock less discounts orcommissions, if any.  Each of the sellingstockholders reserves the right to accept and, together with their agents fromtime to time, to reject, in whole or in part, any proposed purchase of commonstock to be made directly or through agents. We will not receive any of the proceeds from this offering. Upon anyexercise of the warrants by payment of cash, however, we will receive theexercise price of the warrants.

The sellingstockholders also may resell all or a portion of the shares in open markettransactions in reliance upon Rule 144 under the Securities Act of 1933,provided that they meet the criteria and conform to the requirements of thatrule.

The sellingstockholders and any underwriters, broker-dealers or agents that participate inthe sale of the common stock or interests therein may be “underwriters” withinthe meaning of Section 2(11) of the Securities Act.  Any discounts, commissions, concessions orprofit they earn on any resale of the shares may be underwriting discounts andcommissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning ofSection 2(11) of the Securities Act will be subject to the prospectus deliveryrequirements of the Securities Act.

To the extent required,the shares of our common stock to be sold, the names of the sellingstockholders, the respective purchase prices and public offering prices, thenames of any agents, dealer or underwriter, any applicable commissions ordiscounts with respect to a particular offer will be set forth in anaccompanying prospectus supplement or, if appropriate, a post-effectiveamendment to the registration statement that includes this prospectus.

In order to complywith the securities laws of some states, if applicable, the common stock may besold in these jurisdictions only through registered or licensed brokers ordealers.  In addition, in some states thecommon stock may not be sold unless it has been registered or qualified forsale or an exemption from registration or qualification requirements isavailable and is complied with.

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We have advisedthe selling stockholders that the anti-manipulation rules of Regulation M underthe Exchange Act may apply to sales of shares in the market and to theactivities of the selling stockholders and their affiliates.  In addition, to the extent applicable we willmake copies of this prospectus (as it may be supplemented or amended from timeto time) available to the selling stockholders for the purpose of satisfyingthe prospectus delivery requirements of the Securities Act.  The selling stockholders may indemnify anybroker-dealer that participates in transactions involving the sale of theshares against certain liabilities, including liabilities arising under theSecurities Act.

We have agreed toindemnify the selling stockholders against certain liabilities, includingliabilities under the Securities Act and state securities laws, relating to theregistration of the shares offered by this prospectus.

We have agreedwith the selling stockholders to keep the registration statement of which thisprospectus constitutes a part effective until the earlier of (1) such time asall of the shares covered by this prospectus have been disposed of pursuant toand in accordance with the registration statement or (2) the date on which theshares may be sold pursuant to Rule 144(k) of the Securities Act.

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