Exhibit 10.10 to Image Sensing Systems, Inc. Form 10-K for fiscal year ended December 31, 2007






Exhibit 10.10


COMMERCIAL SECURITY AGREEMENT


	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
Principal

 $500,000.00

	
Loan Date

 01-08-2002

	
Maturity

 04-30-2003

	
Loan No

 3757618353

	
Call / Coll

	
Account

	
Officer

 86934

	
Initials



	
References in the shaded area 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.








	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
Grantor: 

	
 

	
Image Sensing Systems, Inc. (TIN:
41-1519168)
500 Spruce Tree Centre, 1600
University Avenue West

St. Paul, MN 55104 

	
 

	
Lender: 

	
 

	
Wells Fargo Bank Minnesota, N.A.

McKnight Business Banking
670
McKnight Rd N 
St Paul, MN 55119 


	
 





THIS COMMERCIAL SECURITY AGREEMENT dated January 8, 2002, is made and
executed between Image Sensing Systems, Inc. (“Grantor”) and Wells Fargo Bank
Minnesota, N.A. (“Lender”).


GRANT OF SECURITY INTEREST. For valuable consideration,
Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the
rights stated in this Agreement with respect to the Collateral, in addition to
all other rights which Lender may have by law.


COLLATERAL DESCRIPTION. The word “Collateral” as
used in this Agreement means the following described property, whether now
owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located, in which Grantor is giving to
Lender a security interest for the payment of the Indebtedness and performance
of all other obligations under the Note and this Agreement:


          All Inventory, Accounts, Equipment and General
Intangibles


In
addition, the word “Collateral” also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:


	
 

	
 


	
 

	
(A) All accessions, attachments, accessories, tools, parts,
 supplies, replacements and additions to any of the collateral described
 herein, whether added now or later.


	
 

	
 


	
 

	
(B) All
 products and produce of any of the property described in this Collateral
 section.


	
 

	
 


	
 

	
(C) All
 accounts, general intangibles, instruments, rents, monies, payments, and all
 other rights, arising out of a sale, lease, or other disposition of any of the property described in this
 Collateral section.


	
 

	
 


	
 

	
(D) All
 proceeds (including insurance proceeds) from the sale, destruction, loss, or
 other disposition of any of the property described in this Collateral section, and sums due from a third party who
 has damaged or destroyed the Collateral or from that party’s insurer, whether
 due to judgment, settlement or other
 process.


	
 

	
 


	
 

	
(E) All
 records and data relating to any of the property described in this Collateral
 section, whether in the form of a writing, photograph, microfilm, microfiche,
 or electronic media, together with all of Grantor’s right, title, and
 interest in and to all computer software required to utilize, create, maintain, and process any such records
 or data on electronic media.





Despite any other provision of this Agreement, Lender is not granted, and
will not have, a nonpurchase money security interest in household goods, to the extent such a security interest would be
prohibited by
applicable law. In addition, if because of the type of any Property, Lender is required to give a notice of the
right to cancel under Truth in
Lending for the Indebtedness, then Lender will not have a security interest in such
Collateral unless and until such a notice is given.


CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all
obligations, debts
and liabilities, plus interest thereon, of Grantor
to Lender, or any one or more of them, as well as all claims by Lender against
Grantor or any one or more of them, whether now existing
or hereafter arising, whether related or unrelated to the purpose of the Note,
whether voluntary or otherwise, whether due or not due, direct or
indirect, determined or undetermined, absolute or contingent, liquidated or
unliquidated whether Grantor may be liable individually or jointly with others, whether obligated as
guarantor, surety, accommodation party or otherwise, and whether recovery upon
such amounts may be or hereafter may
become barred by any statute of limitations, and whether the obligation to
repay such amounts may be or hereafter may become otherwise
unenforceable.


RIGHT OF SETOFF. To
the extent permitted by applicable law, Lender reserves a right of setoff in
all Grantor’s accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Grantor holds
jointly with someone else and all accounts Grantor 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. Grantor 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.


GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT
TO THE COLLATERAL. With respect to the Collateral,
Grantor represents and promises to Lender that:


	
 

	
 


	
 

	
Perfection of Security Interest.
Grantor agrees to execute financing statements and to take whatever other
actions are requested by Lender to
perfect and continue Lender’s security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender’s interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. This is a continuing Security Agreement and will
continue in effect even though all or any part of the Indebtedness is paid in
full and even though for a period of time Grantor may not be indebted to
Lender. 


	
 

	
 


	
 

	
Notices to Lender. Grantor
 will promptly notify Lender in writing at Lender’s address shown above (or
 such other addresses as Lender may designate
 from time to time) prior to any (1) change in Grantor’s name; (2) change in Grantor’s
 assumed business name(s); (3) change in the management of the Corporation
 Grantor; (4) change in the authorized signer(s); (5) change in Grantor’s
 principal office address; (6)
 change in Grantor’s state of organization; (7) conversion of Grantor to a new
 or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly
 relates to any agreements between Grantor and Lender. No change in Grantor’s
 name or state of organization will take effect until after
 Lender has received notice


	
 

	
 


	
 

	
No Violation. The execution
 and delivery of this Agreement will not violate any law or agreement
 governing Grantor or to which Grantor is a party, and its certificate or
 articles of incorporation and bylaws do not prohibit any term or condition of
 this Agreement.


	
 

	
 


	
 

	
Enforceability of Collateral. To
 the extent the Collateral consists of accounts, chattel paper, or general
 intangibles, as defined by the Uniform
 Commercial Code, the Collateral is enforceable in accordance with its terms,
 is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of
 preparation and execution, and all persons appearing to be obligated on the Collateral have authority and
capacity to contract and
 are in fact obligated as they appear to be on the Collateral. At the time any
 Account
























	
 

	
 

	
 


	
Loan No: 3757618353

	
COMMERCIAL SECURITY
 AGREEMENT

 (Continued)

	
Page 2


	
 








	
 

	
 


	
 

	
becomes
 subject to a security interest in favor of Lender, the Account shall be a
 good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for
 merchandise held subject to delivery instructions or previously shipped or
 delivered pursuant to a contract of sale, or for services
 previously performed by Grantor with or for the account debtor. So long as
 this Agreement remains in effect, Grantor
 shall not, without Lender’s prior written consent, compromise, settle,
 adjust, or extend payment under or with regard to any such Accounts. There
 shall be no setoffs or counterclaims against any of the Collateral, and no
 agreement shall have been made under which any deductions or discounts
 may be claimed concerning the Collateral except those disclosed to Lender in
 writing.


	
 

	
 


	
 

	
Location of the
 Collateral. Except in the ordinary course of Grantor’s
 business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such
 as accounts or general intangibles, the records concerning the Collateral) at
 Grantor’s address shown above or at
 such other locations as are acceptable to Lender. Upon Lender’s request,
 Grantor will deliver to Lender in form satisfactory to Lender a schedule of
 real properties and Collateral locations relating to Grantor’s operations,
 including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all
 real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4)
 all other properties where Collateral is or may be located.


	
 

	
 


	
 

	
Removal of the Collateral.
 Except in the ordinary course of Grantor’s business, including the sales of
 inventory, Grantor shall not remove the
 Collateral from its existing location without Lender’s prior written consent.
 To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or
permit
 any action which would require application for certificates of title for the
 vehicles outside the State of Minnesota,
 without Lender’s prior written consent. Grantor shall, whenever requested,
 advise Lender of the exact location
 of the Collateral.


	
 

	
 


	
 

	
Transactions Involving Collateral.
 Except for inventory sold or accounts collected in the ordinary course of
 Grantor’s business, or as otherwise provided for in this Agreement, Grantor
 shall not sell, offer to sell, or otherwise transfer or dispose of the
 Collateral. While Grantor is not in default under
 this Agreement, Grantor may sell inventory, but only in the ordinary course
 of its business and only to buyers who qualify as a buyer in
 the ordinary course of business. A sale in the ordinary course of Grantor’s
 business does not include a transfer in partial
 or total satisfaction of a debt or any bulk sale. Grantor shall not pledge,
 mortgage, encumber or otherwise permit the Collateral to be subject to any
 lien, security interest, encumbrance, or charge, other than the security
 interest provided for in this Agreement, without the prior written consent of
 Lender. This includes security interests even if junior in right to the
 security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition
 of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other
 funds; provided however, this requirement shall not constitute consent by Lender
 to any sale or other disposition. Upon receipt, Grantor shall
 immediately deliver any such proceeds to Lender.


	
 

	
 


	
 

	
Title. Grantor represents and warrants
 to Lender that Grantor holds good and marketable title to the Collateral,
 free and clear of all liens and
 encumbrances except for the lien of this Agreement. No financing statement
 covering any of the Collateral is on file in any public office other than those which reflect the security
 interest created by this Agreement or to which Lender has specifically
 consented. Grantor shall defend Lender’s rights in the
 Collateral against the claims and demands of all other persons.


	
 

	
 


	
 

	
Repairs and Maintenance.
 Grantor agrees to keep and maintain, and to cause others to keep and
 maintain, the Collateral in good order, repair
 and condition at all times while this Agreement remains in effect. Grantor
 further agrees to pay when due all claims for work done on, or services rendered or material furnished in
 connection with the Collateral so that no lien or encumbrance may ever attach
 to or be filed against the Collateral.


	
 

	
 


	
 

	
Inspection of Collateral.
 Lender and Lender’s designated representatives and agents shall have the
 right at all reasonable times to examine and inspect the Collateral wherever
 located.


	
 

	
 


	
 

	
Taxes, Assessments and Liens.
 Grantor will pay when due all taxes, assessments and liens upon the
 Collateral, its use or operation, upon this
 Agreement, upon any promissory note or notes evidencing the Indebtedness, or
 upon any of the other Related Documents. Grantor may
 withhold any such payment or may elect to contest any lien if Grantor is in
 good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s
 interest in the Collateral is not jeopardized in Lender’s sole opinion. If
 the Collateral is subjected to a lien
 which is not discharged within fifteen (15) days, Grantor shall deposit with
 Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to
 provide for the discharge of the lien plus any interest, costs, reasonable
 attorneys’ fees or other charges that could accrue as a result of foreclosure
 or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy
 any final adverse judgment before enforcement against the Collateral. Grantor
 shall name Lender as an additional
 obligee under any surety bond furnished in the contest proceedings. Grantor
 further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other
 charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest
 any lien if Grantor is in good faith conducting an appropriate proceeding to
 contest the obligation to pay and so long as Lender’s interest in the
 Collateral is not jeopardized.


	
 

	
 


	
 

	
Compliance with Governmental Requirements. Grantor shall comply promptly with all laws,
 ordinances, rules and regulations of all governmental authorities, now or
 hereafter in effect, applicable to the ownership, production, disposition, or
 use of the Collateral. Grantor may contest in good faith any such law,
 ordinance or regulation and withhold compliance during any proceeding,
 including appropriate appeals, so long as Lender’s interest in the Collateral,
 in Lender’s opinion, is not jeopardized.


	
 

	
 


	
 

	
Hazardous Substances.
 Grantor represents and warrants that the Collateral never has been, and never
 will be so long as this Agreement remains a lien on the
 Collateral, used in violation of any Environmental Laws or for the
 generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous
 Substance. The representations and warranties contained herein are based on
 Grantor’s due diligence in investigating the Collateral for Hazardous
 Substances. Grantor hereby (1) releases and waives any future claims against
 Lender for indemnity or contribution in the event Grantor becomes liable for
 cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify
 and hold harmless Lender against any and all claims and losses resulting from
 a breach of this provision of this
 Agreement. This obligation to indemnify shall survive the payment of the
 Indebtedness and the satisfaction of this Agreement.


	
 

	
 


	
 

	
Maintenance of Casualty Insurance.
 Grantor shall procure and maintain all risks insurance, including without
 limitation fire, theft and liability coverage
 together with such other insurance as Lender may require with respect to the
 Collateral, in form, amounts, coverages and basis
 reasonably acceptable to Lender and issued by a company or companies
 reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time
 the policies or certificates of insurance in form satisfactory to Lender,
 including stipulations that
 coverages will not be cancelled or diminished without at least ten (10) days’
 prior written notice to Lender and not including any disclaimer of the insurer’s liability for failure
 to give such a notice. Each insurance policy also shall include an
 endorsement providing that coverage
 in favor of Lender will not be impaired in any way by any act, omission or
 default of Grantor or any other person. In connection with all policies
 covering assets in which Lender holds or is offered a security
 interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If
 Grantor at any time fails to obtain or maintain any insurance as required
 under this Agreement, Lender may (but shall not be obligated to)
 obtain such insurance as Lender deems appropriate, including if Lender so
 chooses “single interest insurance,” which will cover only Lender’s interest
 in the Collateral.


	
 

	
 


	
 

	
Application of Insurance Proceeds.
 Grantor shall promptly notify Lender of any loss or damage to the Collateral.
 Lender may make proof of























	
 

	
 

	
 


	
Loan No: 3757618353

	
COMMERCIAL SECURITY
 AGREEMENT

 (Continued)

	
Page 3


	
 








	
 

	
 


	
 

	
loss if Grantor fails to do so
 within fifteen (15) days of the casualty. All proceeds of any insurance on
 the Collateral, including accrued proceeds
 thereon, shall be held by Lender as part of the Collateral. If Lender
 consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon
 satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds
 for the reasonable cost of repair or restoration. If Lender does not
 consent to repair or replacement of the Collateral, Lender shall retain a
 sufficient amount of the proceeds to pay
 all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds
 which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to
 the repair or restoration of the Collateral shall be used to prepay the Indebtedness.


	
 


	
 

	
Insurance Reserves.
 Lender may require Grantor to maintain with Lender reserves for payment of
 insurance premiums, which reserves shall be
 created by monthly payments from Grantor of a sum estimated by Lender to be
 sufficient to produce, at least fifteen (15) days before the
 premium due date, amounts at least equal to the insurance premiums to be
 paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand
 pay any deficiency to Lender. The reserve funds shall be held by Lender as a
 general deposit and shall constitute a non-interest-bearing account
 which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does
 not hold the reserve funds in trust for Grantor, and Lender is not the agent
 of Grantor for payment of the insurance premiums required to be paid by
 Grantor. The responsibility for the payment of premiums shall remain Grantor’s
 sole responsibility.


	
 


	
 

	
Insurance
 Reports. Grantor, upon request of Lender, shall furnish to
 Lender reports on each existing policy of insurance showing such information as Lender may reasonably request
 including the following: (1) the name of the insurer; (2) the risks insured;
 (3) the amount of the policy; (4) the property insured; (5) the then
 current value on the basis of which insurance has been obtained and the
 manner of determining that value; and (6)
 the expiration date of the policy. In addition, Grantor shall upon request by
 Lender (however not more often than
 annually) have an independent appraiser satisfactory to Lender determine, as
 applicable, the cash value or replacement cost of the Collateral.





GRANTOR’S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as
otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property
and beneficial use of all the Collateral and may use it in any lawful manner not
inconsistent with this Agreement or the Related Documents, provided that
Grantor’s right to possession and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender’s security interest
in such Collateral. Until otherwise notified by Lender, Grantor may
collect any of the Collateral consisting of accounts. At any time and even
though no Event of Default exists, Lender may
exercise its rights to collect the accounts and to notify account debtors to
make payments directly to Lender for application to the Indebtedness. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the
Collateral if Lender takes such action for that purpose as Grantor shall
request or as Lender, in Lender’s sole discretion, shall deem appropriate under
the circumstances, but failure to honor any request by Grantor shall not
of itself be deemed to be a failure to exercise reasonable care. Lender shall
not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to
protect, preserve or maintain any security interest given to secure the
Indebtedness.


LENDER’S EXPENDITURES. If any action or proceeding
is commenced that would materially affect Lender’s interest in the Collateral
or if Grantor fails to comply with any
provision of this Agreement or any Related Documents, including but not limited
to Grantor’s failure to discharge or pay when due any amounts Grantor is
required to discharge or pay under this Agreement or any Related Documents,
Lender on Grantor’s behalf may (but shall not
be obligated to) take any action that Lender deems appropriate, including but
not limited to discharging or paying
all taxes, liens, security interests, encumbrances and other claims, at any
time levied or placed on the Collateral and paying all costs for insuring,
maintaining and preserving the Collateral. All such expenditures incurred or
paid by Lender for such purposes will then bear interest at the rate charged
under the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on
demand; (B) be added to the balance of the Note and be apportioned among
and be payable with any installment payments to become due during either (1)
the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which
will be due and
payable at the Note’s maturity. The Agreement also will secure payment of these
amounts. Such right shall be in addition to all other rights and remedies to
which Lender may be entitled upon Default.


DEFAULT. Each
of the following shall constitute an Event of Default under this Agreement: 


	
 

	
 


	
 

	
Payment Default.
 Grantor fails to make any payment when due under the Indebtedness.


	
 

	
 


	
 

	
Other Defaults. Grantor
 fails to comply with or to perform any other term, obligation, covenant or
 condition contained in this Agreement 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 Grantor.


	
 

	
 


	
 

	
Default in Favor
 of Third Parties. Should Grantor or any Grantor default 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 Grantor’s property or Grantor’s or any Grantor’s ability to repay the
 Indebtedness or perform their respective obligations under this Agreement or
 any of the Related Documents.


	
 

	
 


	
 

	
False
 Statements. Any warranty, representation or statement made or
 furnished to Lender by Grantor or on Grantor’s behalf under this Agreement 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.


	
 

	
 


	
 

	
Defective Collateralization. This
 Agreement or any of the Related Documents ceases to be in full force and
 effect (including failure of any collateral
 document to create a valid and perfected security interest or lien) at any
 time and for any reason.


	
 

	
 


	
 

	
Insolvency. The dissolution or termination
 of Grantor’s existence as a going business, the insolvency of Grantor, the
 appointment of a receiver for any part of
 Grantor’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 Grantor.


	
 

	
 


	
 

	
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 Grantor or by any governmental agency against any
 collateral securing the indebtedness. This
 includes a garnishment of any of Grantor’s accounts, including deposit
 accounts, with Lender. However, this Event of Default shall not apply if
 there is a good faith dispute by Grantor as to the validity or reasonableness
 of the claim which is the basis of the creditor
 or forfeiture proceeding and if Grantor 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 guarantor, endorser, surety, or accommodation party of any of the Indebtedness or 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.
























	
 

	
 

	
 


	
COMMERCIAL
 SECURITY AGREEMENT


	
Loan No: 3757618353

	
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Page 4


	
 








	
 

	
 


	
 

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


	
 

	
 


	
 

	
Insecurity. Lender
 in good faith believes itself insecure.


	
 

	
 


	
RIGHTS AND REMEDIES ON DEFAULT. If an
 Event of Default occurs under this Agreement, at any time thereafter, Lender
 shall have all the rights of a secured party under
 the Minnesota Uniform Commercial Code. In addition and without limitation,
 Lender may exercise any one or more of the following
 rights and remedies:


	
 


	
 

	
Accelerate Indebtedness.
 Lender may declare the entire Indebtedness, including any prepayment penalty
 which Grantor would be required to pay, immediately due
 and payable, without notice of any kind to Grantor.


	
 

	
 


	
 

	
Assemble Collateral.
 Lender may require Grantor to deliver to Lender all or any portion of the
 Collateral and any and all certificates of title and other
 documents relating to the Collateral, Lender may require Grantor to assemble
 the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to
 enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains
 other goods not covered by this Agreement at the time of repossession,
 Grantor agrees Lender may take such other goods, provided that Lender makes
 reasonable efforts to return them to Grantor after repossession.


	
 

	
 


	
 

	
Sell the Collateral.
Lender shall have full power to sell, lease, transfer, or otherwise deal with
the Collateral or proceeds thereof in Lender’s own name or that of Grantor. Lender may sell the
Collateral at public auction or private sale. Unless the Collateral threatens
to decline speedily in value or is of a
type customarily sold on a recognized
market, Lender will give Grantor, and other persons as required by law, reasonable
notice of the time and place of any public sale, or the time after which any
private sale or any other disposition of the Collateral is to be made. However, no notice need be
provided to any person who, after Event of Default occurs, enters into and
authenticates an agreement waiving that person’s right to notification of sale.
The requirements of reasonable notice shall be met if such notice is given at
least ten (105) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding,
insuring, preparing for sale and selling the Collateral, shall become a part
of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate from
date of expenditure until repaid. 


	
 

	
 


	
 

	
Appoint Receiver. Lender
 shall have the right to have a receiver appointed to take possession of all
 or any part of the Collateral, with the power
 to protect and preserve the Collateral, to operate the Collateral preceding
 foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above
 the cost of the receivership, against the Indebtedness. The receiver may
 serve without bond if permitted by law. Lender’s right to the appointment of
 a receiver shall exist whether or not the apparent value of the Collateral
 exceeds the Indebtedness by a substantial amount. Employment by Lender shall
 not disqualify a person from serving as a receiver.


	
 

	
 


	
 

	
Collect
 Revenues, Apply Accounts. Lender, either itself or
 through a receiver, may collect the payments, rents, income, and revenues
 from the Collateral. Lender may at any time
 in Lender’s discretion transfer any Collateral into Lender’s own name or that
 of Lender’s nominee and receive the
 payments, rents, income, and revenues therefrom and hold the same as security
 for the Indebtedness or apply it to payment
 of the Indebtedness in such order of preference as Lender may determine.
 Insofar as the Collateral consists of accounts, general intangibles,
 insurance policies, instruments, chattel paper, choses in action, or similar
 property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the
 Collateral as Lender may determine, whether or not Indebtedness or Collateral
 is then due. For these purposes, Lender may, on behalf of and in the name of
 Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are
 to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items
 pertaining to payment, shipment, or storage of any Collateral. To facilitate
 collection, Lender may notify account debtors and obligors on any
 Collateral to make payments directly to Lender.


	
 

	
 


	
 

	
Obtain Deficiency. If
 Lender chooses to sell any or all of the Collateral, Lender may obtain a
 judgment against Grantor for any deficiency remaining
 on the indebtedness due to Lender after application of all amounts received
 from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even
 if the transaction described in this subsection is a sale of accounts or
 chattel paper.


	
 

	
 


	
 

	
Other Rights and Remedies.
 Lender shall have all the rights and remedies of a secured creditor under the
 provisions of the Uniform Commercial Code, as may be amended from time to
 time. In addition, Lender shall have and may exercise any or all other rights
 and remedies it may have available at law,
 in equity, or otherwise.


	
 

	
 


	
 

	
Election of Remedies.
 Except as may be prohibited by applicable law, all of Lender’s rights and
 remedies, whether evidenced by this Agreement, the Related
 Documents, or by any other writing, 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 Grantor under this Agreement,
 after Grantor’s failure to perform, shall not affect Lender’s right to
 declare a default and exercise its
 remedies.





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 this Note and related agreements, and
in the creation and perfection of any liens, security
interests or other collateral rights securing this 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.


ARBITRATION.


Binding Arbitration. Lender, Borrower, and every
other 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, Community
Banking, or any successor group or
department of Bank. 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 American Arbitration
Association (“AAA”), or such other administrator as the parties shall mutually
agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim of counterclaim is at
least $1,000,000.00
exclusive of claimed interest, arbitration fees and


















	
 

	
 

	
 


	
 

	
COMMERCIAL
 SECURITY AGREEMENT

	
 


	
Loan
 No: 3757618353

	
(Continued)

	
Page 5


	
 





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.


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.


MISCELLANEOUS PROVISIONS. The following miscellaneous
provisions are a part of this Agreement:


	
 

	
 


	
 

	
Amendments. This Agreement, together with
 any Related Documents, constitutes the entire understanding and agreement of
 the parties as to the matters set forth in
 this Agreement. No alteration of or amendment to this Agreement shall be
 effective unless given in writing and signed by the party or parties sought
 to be charged or bound by the alteration or amendment.


	
 

	
 


	
 

	
Attorneys’ Fees; Expenses.
 Grantor agrees to pay upon demand all of Lender’s costs and expenses,
 including Lender’s reasonable attorneys’
 fees and Lender’s legal expenses, incurred in connection with the enforcement
 of this Agreement. Lender may hire or pay someone
 else to help enforce this Agreement, and Grantor shall pay the costs and
 expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and
legal
 expenses whether or not there is a lawsuit, including reasonable attorneys’
 fees and legal expenses for bankruptcy proceedings (including efforts to
 modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection
Services. Grantor
 also shall pay all court costs and such additional fees as may be directed by
 the court.


	
 

	
 


	
 

	
Caption Headings.
 Caption headings in this Agreement are for convenience purposes only and are
 not to be used to interpret or define the provisions of this
 Agreement.


	
 

	
 


	
 

	
Governing Law. This Agreement will be governed by, construed and
 enforced in accordance with federal law and the laws of the State of
 Minnesota. This Agreement has been accepted by Lender in the State of
 Minnesota.


	
 

	
 


	
 

	
No Waiver by Lender.
Lender shall not be deemed to have waived any rights under this Agreement
unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender’s right
otherwise to demand strict compliance with
that provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of Lender’s
rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of
Lender is required
under this Agreement, the granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent
instances where such consent is required
and in all cases such consent may be granted or withheld in the
sole discretion of Lender.  


	
 

	
 


	
 

	
Notices. Any
notice required to be given under this Agreement shall be given in writing
and shall be effective when actually delivered, when actually received by
telefacsimile (unless otherwise required by law); when deposited with a.
nationally recognized overnight courier, or; if mailed, when deposited in the
United States mail, as first
class, certified or registered mail postage prepaid, directed to the
addresses 























	
 

	
 

	
 


	
COMMERCIAL
 SECURITY AGREEMENT


	
Loan No: 3757618353

	
(Continued)

	
Page 8


	
 








	
 

	
 


	
 

	
shown near the beginning of this
 Agreement. Any party may change its address for notices under this Agreement
 by giving formal written notice to the
 other parties, specifying that the purpose of the notice is to change the
 party’s address. For notice purposes, Grantor agrees to keep Lender
 informed at all times of Grantor’s current address. Unless otherwise provided
 or required by law, if there is more than one Grantor, any notice given by
 Lender to any Grantor is deemed to be notice given to all Grantors.


	
 

	
 


	
 

	
Power of Attorney. Grantor
 hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the
 purpose of executing any documents necessary
 to perfect, amend, or to continue the security interest granted in this
 Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without
 further authorization from Grantor, file a carbon, photographic or other
 reproduction of any financing statement or of this Agreement for
 use as a financing statement. Grantor will reimburse Lender for all expenses
 for the perfection and the continuation of the perfection of Lender’s
 security interest in the Collateral.


	
 

	
 


	
 

	
Severability. If a
 court of competent jurisdiction finds any provision of this Agreement to be
 illegal, invalid, or unenforceable as to any circumstance, that finding
 shall not make the offending provision illegal, invalid, or unenforceable as
 to any other circumstance. If feasible, the
 offending provision shall be considered modified so that it becomes legal,
 valid and enforceable. If the offending provision cannot be so modified,
 it shall be considered deleted from this Agreement. Unless otherwise required
 by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not
 affect the legality, validity or enforceability of any other provision of
 this Agreement.


	
 

	
 


	
 

	
Successors and Assigns. Subject
 to any limitations stated in this Agreement on transfer of Grantor’s
 interest, this Agreement shall be binding
 upon and inure to the benefit of the parties, their successors and assigns.
 If ownership of the Collateral becomes vested in a person
 other than Grantor, Lender, without notice to Grantor, may deal with
 Grantor’s successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without
 releasing Grantor from the obligations of this Agreement or liability under
 the Indebtedness.


	
 

	
 


	
 

	
Survival of Representations and Warranties. All representations, warranties, and
agreements made by
 Grantor in this Agreement shall survive the execution and delivery of this
 Agreement, shall be continuing in nature, and shall remain in full force and
 effect until such time as Grantor’s Indebtedness shall be paid in full.


	
 

	
 


	
 

	
Time is of the Essence. Time
 is of the essence in the performance of this Agreement.





DEFINITIONS. The
following capitalized words and terms shall have the following meanings when
used in this Agreement. Unless specifically stated
to the contrary, all references to dollar amounts shall mean amounts in lawful
money of the United States of America. Words and terms used in the singular shall include the plural, and the
plural shall
include the singular, as the context may require. Words and terms not otherwise
defined in this Agreement shall have the meanings attributed
to such terms in the Uniform Commercial Code:


	
 

	
 


	
 

	
Account. The word “Account” means a
 trade account, account receivable, other receivable, or other right to
 payment for goods sold or services rendered owing to
 Grantor (or to a third party grantor acceptable to Lender).


	
 

	
 


	
 

	
Agreement. The word
 “Agreement” means this Commercial Security Agreement, as this Commercial
 Security Agreement may be amended or modified from time to time, together
 with all exhibits and schedules attached to this Commercial Security
 Agreement from time to time.


	
 

	
 


	
 

	
Borrower. The word “Borrower” means image
 Sensing Systems, Inc., and all other persons and entities signing the Note in
 whatever capacity.


	
 

	
 


	
 

	
Collateral. The word
 “Collateral” means all of Grantor’s right, title and interest in and to all
 the Collateral as described in the Collateral Description section of this
 Agreement.


	
 

	
 


	
 

	
Default. The word “Default” means the
 Default set forth in this Agreement in the section titled “Default”.


	
 

	
 


	
 

	
Environmental Laws. The
 words “Environmental Laws” mean any and all state, federal and local
 statutes, regulations and ordinances relating
 to the protection of human health or the environment, including without
 limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of
1986, Pub. L. No. 99-499
 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
 et seq., the Resource Conservation and Recovery
 Act, 42 U.S.C. Section 6901, et. seq., or other applicable state or federal
 laws, rules, or regulations adopted pursuant thereto or common law,
 and shall also include pollutants, contaminants, polychlorinated biphenyls,
 asbestos, urea formaldehyde, petroleum and petroleum products, and
 agricultural chemicals.


	
 

	
 


	
 

	
Event of Default. The
 words “Event of Default” mean any of the events of default set forth in this
 Agreement in the default section of this Agreement.


	
 

	
 


	
 

	
Grantor. The word “Grantor” means Image
 Sensing Systems, Inc..


	
 

	
 


	
 

	
Guaranty. The word “Guaranty”‘ means the
 guaranty from guarantor, endorser, surety, or accommodation party to Lender,
 including without limitation a guaranty of all or part of the
 Note.


	
 

	
 


	
 

	
Hazardous
 Substances. The words “Hazardous Substances” mean materials
 that, because of their quantity, concentration or physical, chemical or infectious characteristics, may
 cause or pose a present or potential hazard” to human health or the
 environment when improperly used, treated, stored, disposed of, generated,
 manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense
 and include without limitation any and all hazardous or toxic substances,
 materials or waste as defined by or
 listed under the Environmental Laws. The term “Hazardous Substances” also
 includes, without limitation, petroleum and petroleum by-products or any
 fraction thereof and asbestos.


	
 

	
 


	
 

	
Indebtedness. The
 word “Indebtedness” means the indebtedness evidenced by the Note or Related
 Documents, including all principal and interest together with all
 other indebtedness and costs and expenses for which Grantor is responsible
 under this Agreement or under any of the
 Related Documents.


	
 

	
 


	
 

	
Lender. The word
 “Lender” means Wells Fargo Bank Minnesota, N.A., its successors and assigns. 


	
 

	
 


	
 

	
Note. The word “Note” means the Note
 executed by Grantor in the principal amount of $500,000.00 dated January 8r
 2002, together with all renewals of, extensions of, modifications
 of, refinancings of, consolidations of, and substitutions for the note or
 credit agreement.


	
 

	
 


	
 

	
Related
 Documents. The words “Related Documents” mean all promissory
 notes, credit agreements, loan agreements, environmental agreements; guaranties, security agreements,
 mortgages, deeds of trust, security deeds, collateral mortgages, and all
 other instruments, agreements and documents, whether now or hereafter
 existing, executed in connection with the Indebtedness.





GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 8, 2002.



















	
 

	
 

	
 


	
COMMERCIAL
 SECURITY AGREEMENT


	
Loan No: 3757618353

	
(Continued)

	
Page 7


	
 








	
 

	
 

	
 

	
 

	
 


	
GRANTOR:

	
 

	
 


	
 

	
 

	
 


	
IMAGE SENSING SYSTEMS, INC.

	
 

	
 


	
 

	
 

	
 


	
By :  

	


	
 

	
By :  

	



	
 

	


	
 

	
 

	



	
 

	
William L.
Russell, President/CEO of Image Sensing Systems, Inc. 

	
 

	
 

	
Jeffrey S.
Martin, CFO of Image Sensing Systems, Inc. 








	
 


	
LASER PRO Landing, Ver. 5.17.10.07 Copr. Harland Financial Solutions,
 Inc. 1997, 2002. All Rights Reserved. - MN H:\WINAPP95\LPOP\CFI\LPL\E40.FC 
TR-4153
 PR-234