Exhibit 10.8 to Image Sensing Systems, Inc. Form 10-K for fiscal year ended December 31, 2007







Exhibit 10.8



BUSINESS LOAN AGREEMENT


	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 


	 


	
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.

	
Lender:

	
Wells
 Fargo Bank, National Association


	
 

	
1600
 University Avenue W, Suite 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, Suite 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.











	
 

	
 

	
 


	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (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







	
 

	
 

	
 


	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (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: 







	
 

	
 

	
 


	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (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.


ANNUAL FINANCIAL STATEMENTS. Borrower shall provide to Lender audited
financial statements, prepared by Certified Public Accountant not later than 120 days after and as of the end of each fiscal year, to include an income
statement and a statement of changes to owner’s equity. If Borrower has
subsidiaries, all financial statements shall be provided on a consolidated and
consolidating basis.


INTERIM FINANCIAL STATEMENTS. Borrower shall provide to Lender interim
financial statements not later than 45 days after and as of the end of each
quarter, prepared by Borrower to include a balance sheet as of the end of each
such period, and an income statement and a statement of changes to owner’s
equity, from the beginning of the then fiscal year to the end of such period.
If Borrower has subsidiaries, interim financial statements shall be provided on
a consolidated and consolidating basis.


SECURITIES ACCOUNT STATEMENTS. So long as any securities account serves as
collateral for any Indebtedness, Grantor agrees to direct the financial
services firm holding such account to send to Lender, or at Lender’s option for
Grantor to directly provide statements of account to Lender, at the frequency
requested by Lender but in no event less often than monthly.


SECURITIES; SECURITIES ACCOUNT. As used in this section (i) “Securities”
shall mean any and all collateral securing the Note or other Indebtedness
consisting of securities accounts, mutual funds, certificated or uncertificated
stocks and bonds, or other financial assets, security entitlements or
investment property, and the Income and Proceeds thereof; (ii) “Securities
Account” shall mean an account consisting of the aggregate of all of such
Securities, whether or not certificated or held in a specific securities account;
and (iii) “Grantor” shall mean the owner of the Securities.


Securities Account
Restrictions. So long as no Event of Default exists, Grantor, or any party
authorized by Grantor to act with respect to the Securities, may receive
payments of interest and/or cash dividends earned on financial assets
maintained in the Securities Account. Without Lender’s prior written consent,
except as permitted by the preceding sentence, neither Grantor nor any party
other than Lender may withdraw or receive any distribution of any of the
collateral from the Securities Account. The Collateral Value of the Securities
Account shall at all times be equal to or greater than one hundred percent
(100%) of the outstanding principal balance of the Note plus the amount of any
issued and outstanding letters of credit secured by the Securities. In the
event the Collateral Value, for any reason and at any time, is less than the
required amount, Borrower or Grantor shall promptly make a principal reduction
on the Indebtedness or deposit additional assets of a nature satisfactory to
Lender into the Securities Account, in either case in amounts or with values
sufficient to achieve the required Collateral Value. As used in this paragraph,
“promptly” shall mean the earlier of (i) within 7 days of the occurrence of the
shortage in value, or (ii) by the close of business on the next business day
after Lender has notified Borrower or Grantor of the shortage in value.


Collateral Value. “Collateral
Value” means the percentage set forth below of the lower of the face or market
value, or the lower of the face or redemption value, as appropriate, for each
type of investment property held in the Securities Account or otherwise serving
as Securities collateral at the time of computation, with such value and the
classification of any particular investment property in all instances
determined by







	
 

	
 

	
 


	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (Continued)

	
Page 5


	 





Lender in its sole
discretion, and excluding from such computation all Collective Investment
Funds. Notwithstanding the foregoing, Lender shall exclude from the
determination of Collateral Value (a) any stock with a market value of $10.00
or less as of the date of disbursement of funds, if the aggregate value of all
stock with such market value exceeds 5% of the total market value of the
Securities Account, (b) all investment property from an issuer if Lender, in
its sole discretion, determines such issuer to be ineligible.


	
 

	
 

	
 

	
 


	
Percentage 

	
 

	
Type of Investment Property 

	
 


	 

	
 

	 

	
 


	
90%

	
 

	
U.S. Government Bills,
 Notes, Bonds


	
90%

	
 

	
U.S. Government Sponsored
 Agency Securities


	
85%

	
 

	
High Grade Corporate or
 Municipal Bonds (Rated AAA or AA)


	
80%

	
 

	
Intermediate Grade
 Corporate or Municipal Bonds (A, Baa, BBB)


	
90%

	
 

	
A1 or P1 Graded Commercial
 Paper


	
70%

	
 

	
A2 or P2 Graded Commercial
 Paper


	
75%

	
 

	
New York Stock Exchange
 stock


	
75%

	
 

	
NASDAQ, AMEX, and Other
 Regional Exchanges stock


	
  0%

	
 

	
Rule 144 Restricted or
 Control Securities


	
95%

	
 

	
Money Market Funds


	
90%

	
 

	
Short Term Taxable or Tax
 Exempt Bond Funds


	
85%

	
 

	
Intermediate Term Taxable
 or Tax Exempt Bond Funds


	
80%

	
 

	
General/Long-Term U.S.
 Taxable Bond Funds


	
75%

	
 

	
Long Term Corporate,
 Municipal, Single State Bond Funds 


	
75%

	
 

	
Balanced Stock/Bond Funds


	
70%

	
 

	
Domestic Stock Funds


	
50%

	
 

	
International/Global Funds


	
50%

	
 

	
Sector Funds





Exclusion from Collateral.
Notwithstanding anything herein to the contrary, the terms “Securities” and
“Income and Proceeds” do not include, and Lender disclaims a security interest
in all Collective Investment Funds now or hereafter maintained in the
Securities Account. “Collective Investment Funds” means collective investment
funds as described in 12 CFR 9.18 and includes, without limitation, common
trust funds maintained by Lender for the exclusive use of its fiduciary
clients.


Rule 144. Grantor shall not,
without Lender’s prior written consent which shall be given in Lender’s sole
discretion, sell or otherwise transfer any Securities that are subject to SEC
Rule 144.


OTHER.
Borrower may not use line to fund any acquisition that would be deemed a “hostile
takeover”. Further, acquisition target must be a company within a complementary
industry of the Borrower.


OTHER.
Borrower must utilize availability under the $8,000,000.00 Loan prior to
requesting an advance on the $3,000,000.00 Loan if the purpose of the Advance
is to fund an acquisition by the Borrower.


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 $8,000,000.00 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











	
 

	
 

	
 


	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (Continued)

	
Page 6


	 








	
 

	
 


	
 

	
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.


	
 

	
 


	
 

	
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\C40:FC TR-48696 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)