Exhibit 10.6 to Image Sensing Systems, Inc. Form 10-K for fiscal year ended December 31, 2007







Exhibit 10.6



BUSINESS LOAN AGREEMENT


	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
Principal 

	
Loan
Date 

	
Maturity 

	
Loan
No 

	
Call/Coll 

	
Account 

	
Officer 

	
Initials 


	
$3,000,000.00 

	
12-04-2007 

	
05-31-2008 

	
3757618353-109 

	
 

	
592182 

	
Z1154 

	
 


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








	
 

	
 

	
 

	
 

	
 


	
Borrower: 

	
Image Sensing
 Systems, Inc.

	
 

	
Lender:

	
Wells Fargo Bank,
 National Association


	
 

	
1600 University
 Avenue W, Ste 500 

	
 

	
 

	
McKnight Business
 Banking 


	
 

	
Saint Paul, MN 55104

	
 

	
 

	
670 McKnight Road
 N. 


	
 

	
 

	
 

	
 

	
St. Paul, MN 55119


	
 

	
 

	
 

	
 

	
 





THIS BUSINESS LOAN AGREEMENT dated December 4, 2007, is made and
executed between Image Sensing Systems, Inc. (“Borrower”) and Wells
Fargo Bank, National Association (“Lender”) on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans or other financial
accommodations, including those which may be described on any exhibit or schedule attached to this Agreement
(“Loan”). Borrower understands and agrees that: (A) in granting, renewing, or
extending any Loan, Lender is relying
upon Borrower’s representations, warranties, and agreements as set forth in
this Agreement; (B) the granting, renewing,
or extending of any Loan by Lender at all times shall be subject to Lender’s
sole judgment and discretion; and (C) all such Loans shall be and remain
subject to the terms and conditions of this Agreement.


TERM. This Agreement shall
be effective as of December 4, 2007, and shall continue in full force and
effect until such time as all of Borrower’s Loans
in favor of Lender have been paid in full, including principal, interest,
costs, expenses, attorneys’ fees, and other fees and charges, or until
such time as the parties may agree in writing to terminate this Agreement.


CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial Advance and each subsequent
Advance under this Agreement shall be
subject to the fulfillment to Lender’s satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.


	
 

	
 


	
 

	
Loan Documents. Borrower shall provide to Lender the following
 documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the
 Collateral; (3) financing statements and all other documents perfecting
 Lender’s Security Interests; (4)
 evidence of insurance as required below; (5) together with all such Related
 Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender’s
 counsel.


	
 

	
 


	
 

	
Borrower’s Authorization. Borrower shall have
 provided in form and substance satisfactory to Lender properly certified
 resolutions, duly authorizing the execution and delivery of this Agreement,
 the Note and the Related Documents. In addition, Borrower shall have provided
 such other resolutions, authorizations,
 documents and instruments as Lender or its counsel, may require.


	
 

	
 


	
 

	
Payment of Fees and Expenses. Borrower shall have
 paid to Lender all fees, charges, and other expenses which are then due and
 payable as specified in this Agreement or
 any Related Document.


	
 

	
 


	
 

	
Representations and Warranties. The representations
 and warranties set forth in this Agreement, in the Related Documents, and in
 any document or certificate delivered to Lender under this Agreement are true
 and correct.


	
 

	
 


	
 

	
No Event of Default. There shall not exist at the
 time of any Advance a condition which would constitute an Event of Default
 under this Agreement or under any Related
 Document.





REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lender, as of the date of this Agreement,
as of the date of each disbursement of loan proceeds, as of the date of any
renewal, extension or modification of any Loan, and at all times any
Indebtedness exists:


	
 

	
 


	
 

	
Organization. Borrower is a corporation for profit which is,
 and at all times shall be, duly organized, validly existing, and in good
 standing under and by virtue of the
 laws of the State of Minnesota. Borrower is duly authorized to transact
 business in all other states in which Borrower is doing business,
 having obtained all necessary filings, governmental licenses and approvals
 for each state in which Borrower is doing
 business. Borrower maintains an office at 1600 University Avenue W, Ste 500,
 Saint Paul, MN 55104. Unless Borrower has designated otherwise in writing, the principal office is the office at
 which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify
 Lender prior to any change in the location of Borrower’s state of
 organization or any change in Borrower’s name.


	
 

	
 


	
 

	
Assumed Business Names. Borrower has filed or
 recorded all documents or filings required by law relating to all assumed
 business names used by Borrower. Excluding
 the name of Borrower, the following is a complete list of all assumed
 business names under which Borrower does business: None.


	
 

	
 


	
 

	
Authorization. Borrower’s execution, delivery, and performance
 of this Agreement and all the Related Documents have been duly authorized by
 all necessary action by Borrower and do not conflict with, result in a violation
 of, or constitute a default under (1) any provision of (a) Borrower’s articles of incorporation or organization,
 or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental
 regulation, court decree, or order applicable to Borrower or to Borrower’s
 properties.


	
 

	
 


	
 

	
Properties. Except as contemplated by this
 Agreement or as previously disclosed in Borrower’s financial statements or in
 writing to Lender and as accepted by
 Lender, and except for property tax liens for taxes not presently due and
 payable, Borrower owns and has good title to all of Borrower’s properties
 free and clear of all liens and security interests, and has not executed any
 security documents or financing statements
 relating to such properties. All of Borrower’s properties are titled in
 Borrower’s legal name, and Borrower has not used or filed a financing
 statement under any other name for at least the last five (5) years.





AFFIRMATIVE COVENANTS.
Borrower covenants and agrees with Lender that, so long as this Agreement
remains in effect, Borrower will:


	
 

	
 


	
 

	
Notices of Claims and
 Litigation. Promptly inform
 Lender in writing of (1) all material adverse changes in Borrower’s financial
 condition, and (2) all existing and all threatened litigation, claims,
 investigations, administrative proceedings or similar actions affecting
 Borrower or any Guarantor which
 could materially affect the financial condition of Borrower or the financial
 condition of any Guarantor.


	
 

	
 


	
 

	
Financial Records. Maintain its books and records
 in accordance with accounting principles acceptable to Lender, applied on a
 consistent basis, and permit Lender to
 examine and audit Borrower’s books and records at all reasonable times.












	
 

	
 

	
 


	
 


	
BUSINESS LOAN AGREEMENT


	
Loan No:
 3757618353-109

	
(Continued)

	
Page 2


	
 

	
 

	
 








	
 

	
 


	
 

	
Financial
 Statements. Furnish Lender with
 such financial statements and other related information at such frequencies
 and in such detail as Lender may reasonably request.


	
 

	
 


	
 

	
Loan Proceeds. Use all Loan proceeds solely for Borrower’s
 business operations, unless specifically consented to the contrary by Lender
 in writing.


	
 

	
 


	
 

	
Taxes, Charges and
 Liens. Pay and discharge when
 due all of its indebtedness and obligations, including without limitation all
 assessments, taxes, governmental
 charges, levies and liens, of every kind and nature, imposed upon Borrower or
 its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims
 that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income, or profits.


	
 

	
 


	
 

	
Performance. Perform and comply, in a timely manner, with all
 terms, conditions, and provisions set forth in this Agreement, in the Related
 Documents, and in all other
 instruments and agreements between Borrower and Lender. Borrower shall notify
 Lender immediately in writing of
 any default in connection with any agreement.


	
 

	
 


	
 

	
Operations. Maintain executive and management personnel with
 substantially the same qualifications and experience as the present executive and management personnel; provide
 written notice to Lender of any change in executive and management personnel;
 conduct its business affairs in a reasonable and prudent manner.


	
 

	
 


	
 

	
Compliance with
 Governmental Requirements.
 Comply with all laws, ordinances, and regulations, now or hereafter in
 effect, of all governmental
 authorities applicable to the conduct of Borrower’s properties, businesses
 and operations, and to the use or occupancy of the Collateral, including without limitation, the
 Americans With Disabilities Act. Borrower may contest in good faith any such
 law, ordinance, or regulation and
 withhold compliance during any proceeding, including appropriate appeals, so
 long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender’s sole opinion,
 Lender’s interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a
 surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.


	
 

	
 


	
 

	
Inspection. Permit employees or agents of Lender at any
 reasonable time to inspect any and all Collateral for the Loan or Loans and
 Borrower’s other properties and to examine or audit Borrower’s books,
 accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records. If
 Borrower now or at any time hereafter maintains any records (including
 without limitation computer generated records and computer software programs
 for the generation of such records) in the possession of a third party,
 Borrower, upon request of Lender, shall notify such party to permit Lender free
 access to such records at all reasonable times and to provide Lender with copies of any records it may
 request, all at Borrower’s expense.





LENDER’S EXPENDITURES. If
any action or proceeding is commenced that would materially affect Lender’s
interest in the Collateral or if Borrower fails to comply with any provision of
this Agreement or any Related Documents, including but not limited to
Borrower’s failure to discharge or
pay when due any amounts Borrower is required to discharge or pay under this
Agreement or any Related Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action
that Lender deems appropriate on any Collateral and paying all costs for
insuring, maintaining and preserving any 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 Borrower. 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.


CESSATION OF ADVANCES. If
Lender has made any commitment to make any Loan to Borrower, whether under this
Agreement or under any other agreement, Lender shall have no obligation to make
Loan advances or to disburse Loan proceeds if: (A) Borrower or any guarantor is
in default under the terms of this
Agreement or any other agreement that Borrower or any guarantor has with
Lender; (B) Borrower or any guarantor
dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy
or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in
Borrower’s financial condition, in the financial condition of any guarantor, or
in the value of any collateral securing any Loan; or (D) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor’s
guaranty of the Loan or any other
loan with Lender; or (E) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.


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


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


	
 

	
 


	
 

	
Payment Default. Borrower fails to make any payment when due
 under the Loan.


	
 

	
 


	
 

	
Other Default. Borrower fails to comply with any other term,
 obligation, covenant or condition contained in this Agreement or in any of
 the Related Documents.


	
 

	
 


	
 

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


	
 

	
 


	
 

	
False Statements. Any representation or statement made by Borrower
 to Lender is false in any material respect.


	
 

	
 


	
 

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


	
 

	
 


	
 

	
Creditor or
 Forfeiture Proceedings.
 Commencement of foreclosure or forfeiture proceedings, whether by judicial
 proceeding, self-help, repossession or any other method, by any creditor of
 Borrower or by any governmental agency against any collateral securing the
 Loan.


	
 

	
 


	
 

	
Events Affecting
 Guarantor. Any of the preceding
 events occurs with respect to any Guarantor of any of the Indebtedness or any
 Guarantor dies or becomes
 incompetent, or revokes or disputes the validity of, or liability under, any
 Guaranty of the Indebtedness.


	
 

	
 


	
 

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


	
 

	
 


	
 

	
Insecurity. Lender in good faith believes itself insecure.





EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in
this Agreement or the Related Documents,
all commitments and obligations of Lender under this Agreement immediately will
terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender’s option, all
Indebtedness immediately will become due and payable, all without notice








	
 

	
 

	
 


	
 


	
BUSINESS LOAN AGREEMENT


	
Loan No:
 3757618353-109

	
(Continued)

	
Page 3


	
 

	
 

	
 





of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the “Insolvency” subsection above, such acceleration shall be automatic and not optional.
In addition, Lender shall have all the rights and remedies provided in the
Related Documents or available at law, in equity, or otherwise. Except as
may be prohibited by applicable law, all of Lender’s rights and remedies
shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender’s right to
declare a default and to exercise its
rights and remedies.


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


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


INSURANCE. Borrower shall
assure that insurance is maintained pursuant to any insurance requirements set
forth in the Agreement To Provide Insurance and /or other Related
Documents, if applicable.


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


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


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


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


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


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


State-Specific Provisions.


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








	
 

	
 

	
 


	
 


	
BUSINESS LOAN AGREEMENT


	
Loan No:
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(Continued)

	
Page 4


	
 

	
 

	
 





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


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


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


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


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


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


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


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


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


LOAN AGREEMENT PROVISION.
The following covenants apply to the loan evidenced by the Note and to all
other loans or other credit accommodations from Lender to Borrower now existing
or subsequently arising under any future confirmation letter, agreement or
promissory note, excluding any loans
or financial accommodations which are not serviced by the Wells Fargo Business
Banking Group, or its successors (“Excluded
Loans”). These covenants supersede and replace any prior financial reporting
and condition covenants and shall survive the payoff of the Loan, but shall not
affect any Excluded Loans or covenants which by their nature relate only to a
specific credit transaction.


COVENANTS FOR. Image Sensing Systems, Inc.


ADDITIONAL COVENANTS. Within
30 days of month-end, a Borrowing Base Certificate will be required if the Borrower’s
outstandings under the $3,000,000.00
Loan exceed $2,000,000.00 at any point during the month. Any request to advance
in excess of $2,000,000.00 will require a current Borrowing Base Certificate to either be on file or submitted to
the Bank prior to advance.


Notwithstanding
the Limitation on Advances provisions set forth below, the advance rate for
[eligible] accounts receivable due from Econolite Control Products, Inc., will
be 60% with no ineligible account categories applied.


ACCOUNTS RECEIVABLE AND OTHER
REPORTS. Borrower shall provide the following reports to Lender, all in a
form satisfactory to Lender:


not later than
30 days following, and as of the end of each month, a Borrowing Base
certificate.


ACCOUNTS RECEIVABLE AND INVENTORY ADVANCE RATES. Limitation on Advances. Amounts outstanding under
any line of credit governed by this
Agreement, to a maximum of the principal remaining available, shall not exceed
80% of Borrowers Eligible Accounts Receivable and 10% of Eligible Inventory as
determined by Lender (“Borrowing Base”). All of the foregoing shall be
determined by Lender upon receipt and review
of all collateral reports and borrowing base certificates required hereunder
and such other documents and collateral information as Lender may from time to time require.


As
used herein, “eligible accounts receivable” shall consist solely of trade
accounts created in the ordinary course of Borrower’s business, upon which Borrower’s right to receive payment is
absolute and not contingent upon the fulfillment of any condition whatsoever,
and in which Lender has a perfected security interest of first priority, and
shall not include:


a)
any account which is more than 90 days
past due, except with respect to any account for which Borrower has provided
extended payment terms not to exceed 30 days, any such account which is more
than 30 days past due;


b)
that portion of any account which
constitutes a pre-billing or a “bill and hold”, or a credit memo balance,
service charge or finance charge, or for
which there exists any right of setoff, defense, discount allowance (except
regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense
or counterclaim has been asserted;


d)
any account which represents an
obligation of an account debtor located in a foreign country, except to the
extent any such account, in Lender’s
determination, is supported by a letter of credit or insured’under a policy of
foreign credit insurance, in each case in form, substance and issued by a party acceptable to Lender;


e)
any account which arises from the
sale or lease to or performance of services for, or represents an obligation
of, an employee, affiliate.








	
 

	
 

	
 


	
 


	
BUSINESS LOAN AGREEMENT


	
Loan No:
 3757618353-109

	
(Continued)

	
Page 5


	
 

	
 

	
 





partner, member, parent or
subsidiary of Borrower;


f)
that portion of any account, which represents interim or progress billings on
the part of the account debtor, and any accounts subject to rights
under third-party payment or performance bonds;


g)
that portion of any account, which represents retention rights on the part of
the account debtor, and any account subject to rights under third-party
payment or performance bonds;


h)
any account which represents an obligation of any account debtor when ten
percent (10%) or more of Borrower’s accounts from such account debtor are greater than 90 days past due,
unless Borrower has provided extended payment terms acceptable to Lender and
such extended payment accounts are not more than 30 days past due;


i)
that portion of any account from an account debtor which represents the amount
by which Borrower’s total accounts from said account debtor exceeds twenty-five percent (25%) of
Borrower’s total accounts;


j) any account deemed ineligible by
Lender when Lender, in its sole discretion, deems the creditworthiness or
financial condition of the account debtor,
or the industry in which the account debtor is engaged, to be unsatisfactory.


[“Eligible
Inventory” shall mean goods that in Lender’s determination have broad,
well-defined markets and for which grading and valuation are standardized,
excluding:


a)
goods with limited liquidation value, including but not limited to, work in
process, and goods that are obsolete, unsaleable, damaged, slow moving, custom,
private labeled, proprietary or perishable, packaging materials, supplies,
samples, demos, prototypes or cost capitalized to inventory for tax purposes; 


b)
goods over which Borrower has limited control, including but not limited to,
goods consigned to others, goods not on Borrower’s premises and goods in
transit; and goods at public warehouses for which proper protective
documentation has not been executed; or


c)
goods for which Lender does not hold a first priority perfected security
interest, goods subject to legal restrictions, including but not limited to,
goods consigned to Borrower by others, goods located in foreign nations, U.S.
territories or possessions, bill and hold inventory, goods subject to a vendor’s purchase money security
interest or other lien, goods in which there are questions of title or for
which an assignment of license has not been perfected, and in the case
of agricultural commodities, goods associated with unsubordinated grower payables.


Eligible
Inventory shall be valued at the lower of cost or market value, as determined
by Lender upon receipt and review of collateral reports and documents as Lender
may require.


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. Accounting words and terms not otherwise defined in this Agreement shall have
the meanings assigned to them in accordance with generally accepted accounting
principles as in effect on the date of
this Agreement:


	
 

	
 


	
 

	
Advance. The word “Advance” means a disbursement of Loan
 funds made, or to be made, to Borrower or on Borrower’s behalf on a line of
 credit or multiple advance basis under the terms and conditions of this
 Agreement.


	
 

	
 


	
 

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


	
 

	
 


	
 

	
Borrower. The word “Borrower” means Image Sensing Systems,
 Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.


	
 

	
 


	
 

	
Collateral. The word “Collateral” means all property and
 assets granted as collateral security for a Loan, whether real or personal
 property, whether granted directly
 or indirectly, whether granted now or in the future, and whether granted in
 the form of a security interest, mortgage, collateral mortgage, deed
 of trust, assignment, pledge, crop pledge, chattel mortgage, collateral
 chattel mortgage, chattel trust, factor’s
 lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or
 title retention contract, lease or consignment intended as a security device, or any other security or lien
 interest whatsoever, whether created by law, contract, or otherwise.


	
 

	
 


	
 

	
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 each and all of the
 persons or entities granting a Security Interest in any Collateral for the
 Loan, including without limitation
 all Borrowers granting such a Security Interest.


	
 

	
 


	
 

	
Guarantor. The word “Guarantor” means any guarantor,
 surety, or accommodation party of any or all of the Loan.


	
 

	
 


	
 

	
Guaranty. The word “Guaranty” means the guaranty from
 Guarantor to Lender, including without limitation a guaranty of all or part
 of the Note.


	
 

	
 


	
 

	
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 Borrower is responsible under this Agreement
 or under any of the Related
 Documents.


	
 

	
 


	
 

	
Lender. The word “Lender” means Wells Fargo Bank,
 National Association, its successors and assigns.


	
 

	
 


	
 

	
Loan.  The word “Loan” means any and all loans and
 financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including
 without limitation those loans and financial accommodations described herein
 or described on any exhibit or schedule attached to this Agreement from time
 to time.


	
 

	
 


	
 

	
Note. The word “Note” means the Note executed by Image
 Sensing Systems, Inc. in the principal amount of $3,000,000.00 dated December 4, 2007, 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 Loan.


	
 

	
 


	
 

	
Security Agreement. The words “Security Agreement” mean and include
 without limitation any agreements, promises, covenants, arrangements, understandings or other agreements,
 whether created by law, contract, or otherwise, evidencing, governing,
 representing, or creating a Security Interest.












	
 

	
 

	
 


	
 


	
BUSINESS LOAN AGREEMENT


	
Loan No:
 3757618353-109

	
(Continued)

	
Page 6


	
 

	
 

	
 








	
 

	
 


	
 

	
Security Interest. The words “Security Interest” mean, without
 limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge,
 encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop
 pledge, chattel mortgage, collateral
 chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional
 sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any
 other security or lien interest whatsoever whether created by law, contract,
 or otherwise.





BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS
TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED DECEMBER 4, 2007.


BORROWER:


IMAGE SENSING SYSTEMS, INC.


	
By:  
	 	 
	By:  
	
/s/ Greg Smith

	
 

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

	
 

	
 

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







LENDER:


WELLS FARGO BANK, NATIONAL ASSOCIATION


	
 

	
 

	
 

	
 


	
By:  

	
/s/ Christine K. Warner	
 

	
 


	
 

	
Authorized Signer

	
 

	
 








	
 


	
 


	
LASER PRO Lending, Ver. 5.38.10.001 Copr. Harland
 Financial Solutions, Inc. 1997, 2007. All Rights Reserved. MN
 X:\LPROD\CFI\LPL\C4O.FC TR-48697 PR-689












RIDER TO 

BUSINESS LOAN AGREEMENT


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


          Reference
is hereby made to that certain Business Loan Agreement dated of even date hereof made between the Borrower and the Lender.
Capitalized terms not otherwise defined herein have the same meaning as
set forth in the above described Business Loan Agreement. This Rider shall be read consecutively with, and
deemed incorporated into such Business Loan Agreement.


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


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


“Change in Ownership. Any change in ownership of forty 

percent (40%) or more of the common
stock of Borrower.”


          Except
as modified by this Rider, the Business Loan Agreement remains unchanged and in
full force and effect.


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


	
 

	
 

	
 

	
 

	
 


	
“BORROWER”

	
 

	
“LENDER”


	
 


	
IMAGE SENSING SYSTEMS, INC.

	
 

	
WELLS FARGO BANK,


	
 

	
 

	
 

	
NATIONAL
 ASSOCIATION


	
 


	
By:

	 
	
 

	
By:

	
/s/ Christine K. Warner

	
 

	
               Kenneth R. Aubrey

	
 

	
 

	
 


	
 


	
Its: 

	
President and Chief Executive Officer

	
 

	
Its: 

	
VP



	
 


	
By: 

	/s/ Greg Smith	
 

	
 

	
 


	
 

	
               Gregory R. L. Smith 

	
 

	
 

	
 


	
 


	
Its: 

	
Chief Financial Officer

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
 





Rider - Mgl3l3vl(MK)