Exhibit 10.9 to Image Sensing Systems, Inc. Form 10-K for fiscal year ended December 31, 2007







Exhibit 10.9


PROMISSORY NOTE


	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
Principal $8,000,000.00 

	
Loan Date
12-04-2007 

	
Maturity
09-30-2008 

	
Loan No 
3757618353 

	
Call / Coll 

	
Account 

592178 

	
Officer

Z1154 

	
Initials 


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








	
 

	
 

	
 

	
 


	
Borrower:

	
Image
Sensing Systems, Inc.

1600
University Avenue W, Suite 500

Saint Paul, MN 55104 

	
Lender:

	
Wells
Fargo Bank, National Association

McKnight
Business Banking 

670
McKnight Road N.

St. Paul, MN 55119 


	
 








	
 

	
 

	
 

	
 

	
 

	
 


	
Principal Amount:

	
$8,000,000.00

	
Initial Rate:

	
7.000%

	
Date of Note:

	
December 4, 2007





PROMISE TO PAY. Image Sensing Systems, Inc. (“Borrower”) promises to pay to Wells Fargo Bank,
National Association (“Lender”), or order, in lawful money of the United States of America, the principal amount
of Eight Million & 00/100 Dollars ($8,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment
of each advance.


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


VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on
changes in an index which is the floating rate equal to the Prime Rate set from time to time by Lender that serves as the basis
upon which effective rates of interest are calculated for those loans making reference thereto (the “Index”). The Index
is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index
becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will
tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each
time the Index changes. Each change in the Prime Rate of interest hereunder shall become effective on the date each Prime Rate
change is announced within Lender. The “initial rate” is the rate per annum which Borrower and Lender agree shall be the
initial rate of this Note, and the “Index currently” is the Index amount upon which said initial rate is based; they do
not necessarily reflect the Index in effect on the date of this Note. Borrower understands that Lender may make loans based on
other rates as well. The Index currently is 7.500% per annum. The interest rate to be applied to the unpaid
principal balance during this Note will be at a rate of 0.500 percentage points under the Index, resulting in an initial rate of
7.000% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by
applicable law.


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


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


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


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


	
 

	
 


	
 

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


	
 

	
 


	
 

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


	
 

	
 


	
 

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


	
 

	
 


	
 

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


	
 

	
 


	
 

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











	
 

	
 

	
 


	
 

	
PROMISSORY NOTE

	
 


	
Loan No: 3757618353

	
(Continued)

	
Page 2


	
 








	
 

	
 


	
 

	
repossession or any other
 method, by any creditor of Borrower or by any governmental agency against any
 collateral securing the loan. This
 includes a garnishment of any of Borrower’s accounts, including deposit
 accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by
 Borrower as to the validity or reasonableness of the claim which is the basis
 of the creditor or forfeiture proceeding and if Borrower gives Lender written
 notice of the creditor or forfeiture proceeding and deposits with Lender
 monies or a surety bond for the creditor or forfeiture proceeding, in
 an amount determined by Lender, in its sole discretion, as being an adequate
 reserve or bond for the dispute.


	
 

	
 


	
 

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


	
 

	
 


	
 

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


	
 

	
 


	
 

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


	
 

	
 


	
 

	
Insecurity. Lender in good faith believes itself insecure.





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


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


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


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


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


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


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


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


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


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


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







	
 

	
 

	
 


	
 

	
PROMISSORY NOTE

	
 


	
Loan No: 3757618353

	
(Continued)

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


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


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


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


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


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


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


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


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


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


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


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


C. Subfeature
Limits.
The outstanding amount of all Letters of Credit and foreign exchange contracts,
plus the reserve percentage applicable to foreign exchange contracts, shall be reserved under
the Note and shall not be available for Note advances. The amount of all
outstanding foreign exchange
contracts plus a reserve percentage of 20% of said amount, plus the aggregate
principal amount of all outstanding Letters of Credit, plus the principal
amounts of any advances outstanding under the Note, shall not at any time
exceed the principal amount of the Note,







	
 

	
 

	
 


	
 

	
PROMISSORY NOTE

	
 


	
Loan No: 3757618353

	
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unless allowed by Lender at
Lender’s full discretion. Any excess amount shall be fully due and payable
immediately without notice. As used herein,
Wells Fargo Affiliate means any present or future subsidiary of Wells Fargo
& Company, any subsidiary thereof, and any successors of such
financial service companies.


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


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


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


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


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


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


State-Specific Provisions.


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


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


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


Real Property Collateral; Judicial
Reference. Notwithstanding anything herein to the contrary, no dispute shall be
submitted to arbitration if the dispute
concerns indebtedness secured directly or indirectly, in whole or in part, by
any real property unless (i) the
holder of the mortgage, lien or security interest specifically elects in
writing to proceed with the arbitration, or (ii)
all parties to the arbitration waive any rights or benefits







	
 

	
 

	
 


	
 

	
PROMISSORY NOTE

	
 


	
Loan No: 3757618353

	
(Continued)

	
Page 5


	
 





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).


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


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


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


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


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


BORROWER:


IMAGE SENSING SYSTEMS, INC.


	 
	 
	 
	 
	 

	By:
	 
	 
	By:
	/s/ Greg Smith

	 
	Kenneth R. Aubrey, President and CEO of Image 
 Sensing Systems,
Inc.
	 
	 
	Gregory R. L. Smith, CFO of Image Sensing Systems, Inc.

	
 

	
 

	
 

	
 

	
 





 








RIDER TO 
 PROMISSORY NOTE


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


          Reference is hereby made to that certain Promissory
Note dated of even date hereof in the original principal amount of $8,000,000.00 made between the Borrower and the Lender.
Capitalized terms not otherwise defined herein have the same meaning as set forth in the above described Promissory Note. This
Rider shall be read consecutively with, and deemed incorporated into such Promissory Note.


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


	
 

	
 


	

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


	
 

	
 


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


	
 


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


	
 

	
 





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


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


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



	
 

	
 

	
 

	
 

	
 


	
“BORROWER”

	
 

	
“LENDER”


	
 

	
 

	
 

	
 

	
 


	
 

	
IMAGE SENSING SYSTEMS, INC.

	
 

	
WELLS FARGO BANK,


	
 

	
 

	
 

	
  NATIONAL ASSOCIATION


	 
	By:
	 
	 
	By:
	/s/ Christine K. Warner

	 
	Kenneth R. Aubrey
	 
	 
	 

	 
	Its:
	President and Chief Executive Officer
	 
	Its:
	VP

	 
	By: 
	/s/ Greg Smith
	 
	 

	
 
	Gregory R. L. Smith
	 
	 
	 

	 
	Its: 
	Chief Financial Officer
	 
	 
	 







Rider - Mg l313vl(MK)