Exhibit 10.5


PROMISSORY NOTE


	
  

 	
  

 
	
 $5,000,000.00

 	
 St. Paul, Minnesota

 
	
 Loan # 12333-01

 	
 Dated Effective May 12, 2014

 


1.          FOR
VALUE RECEIVED, Image Sensing Systems, Inc., a Minnesota corporation (the “Borrower”), hereby promises to pay to the
order of Alliance Bank, a Minnesota banking corporation (the “Lender”), at its banking house located in
St. Paul, Minnesota, the principal sum of FIVE MILLION AND NO/100
($5,000,000.00) DOLLARS, or so much thereof which has been advanced to or for
the benefit of the Borrower pursuant to that certain Commitment Letter dated
May 7, 2014, by and between the Lender and the Borrower (the “Commitment Letter”) in lawful money of the
United States, together with interest thereon from the date hereof at a fixed
rate equal to three and ninety-five one hundredths percent (3.95%) per annum.
Interest shall be calculated on the basis of the actual number of days elapsed
and a 360 day year. This Note shall be payable in consecutive monthly
installments of all accrued interest to date of payment commencing thirty (30)
days after the date of this Note and continuing on the same day of each and
every month thereafter until one (1) year after the date of this Note, at which
time the entire unpaid principal balance plus accrued and unpaid interest shall
be due and payable in full (the “Maturity Date”).


2.          This
Note may be prepaid in whole or in part at any time without penalty.


3.          If
any installment or payment of principal, interest or otherwise on or relating
to this Note, including any final balloon installment or payment, is not paid
within ten (10) days of the due date thereof, the Borrower shall pay to the
Lender a late charge equal to five percent (5%) of the amount of such
installment or payment, including any final balloon installment or payment. The
Borrower acknowledges that the late payment fee is not imposed as a charge for
the use of money, but to permit the Lender to offset its administrative
expenses and other costs in dealing with loans not paid on time. The late
payment fee shall in no way be deemed an interest charge. This provision shall
not be deemed to excuse a late payment or be deemed a waiver of any other
rights the Lender may have, including the right to declare the entire unpaid
principal and interest immediately due and payable.


4.          Upon
the occurrence of and during the continuance of an Event of Default (as
hereinafter defined), the rate of interest on this Note shall, at the option of
the Lender, automatically increase by five percent (5%) per annum. Any increase
in the rate of interest pursuant to this paragraph shall be in addition to and
not in lieu of any of the charges which become due pursuant to Paragraph 3
above.


5.          Until
such time as this Note is fully paid, the Borrower shall maintain the
Borrower’s primary operating accounts and all of the money market accounts with the Lender or an affiliate of the
Lender. If the Borrower fails to maintain or cause to be maintained all such
operating and money market accounts with the Lender or an affiliate of the
Lender, then such failure to maintain or cause to maintain all such accounts
shall constitute an Event of Default. Notwithstanding anything to the contrary
herein, at all times during the term of this Note, the funds in the Borrower’s
money market account and operating account must be maintained at a level
sufficient to cover any advances made under this Note.


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Exhibit
10.5


6.          All
payments and prepayments shall, at the option of the Lender, be applied first
to any costs of collection, second to any late charges, third to accrued
interest on this Note, and lastly to principal and, in the case of prepayments,
to installments of principal in the inverse order of their maturity. Anything
to the contrary herein or in the balance of the loan documentation
notwithstanding, upon the occurrence of an Event of Default, the Lender shall
have the right to apply all future payments and prepayments in such manner as
the Lender shall solely determine.


7.          This
Note evidences a revolving line of credit loan under which advances, payments
and re-advances may be made from time to time up to a maximum principal amount
of $5,000,000.00. Subject to all further conditions and restrictions set forth
in the Loan documentation incident hereto, the Borrower may borrow, repay and
reborrow pursuant to this Note, as described in the preceding sentence.


8.          This
Note is issued pursuant to the terms of the Commitment Letter and is secured by
that certain Security Agreement to the Lender from the Borrower of even date
herewith (the “Security Agreement”). This Note is entitled to all of the
benefits provided for in the Commitment Letter and the Security Agreement, and
all documents incident thereto.


9.          The
outstanding principal balance of this Note and accrued interest and all other
amounts due hereon shall, at the option of the Lender, become immediately due
and payable, upon the occurrence of an Event of Default, or at any time
thereafter.


10.          A
default with respect to this Note shall also constitute a default with respect
to any other indebtedness or liability of the Borrower to the Lender, whether
any such other indebtedness is now existing or hereafter existing, and a
default with respect to any such other indebtedness or liability of the
Borrower to the Lender shall also constitute a default with respect to this
Note.


11.          Upon
the occurrence of an Event of Default or at any time thereafter, the Lender
shall have the right to set off any and all amounts due hereunder by the
Borrower to the Lender against any indebtedness or obligation of the Lender to
the Borrower.


12.          Upon
the occurrence of an Event of Default or at any time thereafter, the Borrower
promises to pay all costs of collection of this Note, including but not limited
to reasonable attorneys’ fees paid or incurred by the Lender on account of such
collection, whether or not suit is filed with respect thereto and whether such
cost or expense is paid or incurred, or to be paid or incurred, prior to or
after the entry of judgment.


13.          All
remedies available to the Lender herein, in any document incident hereto,
and/or in law or equity, shall be cumulative and may be exercised together,
separately, and in any order.


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Exhibit 10.5


14.          As
used herein, the term “Event of Default” shall mean the occurrence or existence
of one or more of the following events, whatever the reason, whether voluntary,
involuntary or effected by operation of law, namely:


	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Failure
 to make any payment when due, whether by acceleration of maturity or
 otherwise, of any principal of this Note, which failure shall continue after
 five (5) days written notice thereof from the Lender to the Borrower; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Failure
 to make any payment when due, whether by acceleration of maturity or
 otherwise, of any interest on this Note or any fee or other sum payable to
 the Lender under this Note, the Commitment Letter, the Security Agreement, or
 any document incident thereto, which failure shall continue after five (5)
 days written notice thereof from the Lender to the Borrower; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Default
 in any material respect by the Borrower in the performance or observance of
 any agreement, covenant, condition, provision or term contained in this Note,
 the Commitment Letter, the Security Agreement, or any document incident
 thereto, which shall remain unremedied for ten (10) days or more after
 receipt of written notice thereof by the Borrower from the Lender, or for
 such longer period as may be reasonably necessary to remedy such default
 (other than defaults which can be cured by a money payment) provided that the
 Borrower is proceeding with reasonable diligence to remedy the same; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Any
 representation or warranty made by the Borrower in any document, certificate,
 schedule, statement, report, notice or writing furnished by or on behalf of
 the Borrower to the Lender shall be untrue or misleading in any material
 respect on the date as of which the facts set forth are stated or certified;
 or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 Any
 creditor (including without limitation the Lender) or representative of any
 creditor of the Borrower declares any indebtedness for borrowed money in
 excess of $100,000.00 owing on any bond, debenture, note or other evidence of
 indebtedness to be due and payable prior to its express maturity, or any such
 indebtedness becomes due and payable prior to its express maturity, by reason
 of any default by the Borrower in the performance or observance of any
 obligation or condition and such default shall not be cured or waived within
 ten (10) days after the occurrence thereof, or for such longer period as may
 be reasonably necessary to remedy such default (other than defaults which can
 be cured by a money payment) provided that the Borrower is proceeding with
 reasonable diligence to remedy the same, or any such indebtedness becomes due
 by its terms and shall not be paid or extended within ten (10) days thereof;
 or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 The
 Borrower shall become insolvent or fail generally to pay the Borrower’s debts
 as they mature or shall apply for, consent to, or acquiesce in the
 appointment of a trustee, custodian or receiver thereof or of the property
 thereof; or, in the absence of such application, consent or acquiescence, a
 trustee, custodian or receiver shall be appointed for the Borrower or for a
 substantial part of the property thereof, and such trustee, custodian or
 receiver is not discharged within sixty (60) days after such appointment; or,
 the Borrower is voluntarily or involuntarily dissolved or is the subject of
 any bankruptcy, reorganization, debt arrangement or other proceedings under
 any bankruptcy or insolvency law and, in the case of any involuntary
 proceedings, the same are not dismissed or discharged within sixty (60) days
 after the commencement thereof; or,

 


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Exhibit 10.5


	
  

 	
  

 	
  

 
	
  

 	
 (g)

 	
 Any
 dissolution or liquidation proceeding shall be instituted by or against the
 Borrower, and, if instituted against the Borrower, shall be consented to or
 acquiesced in by the Borrower, or shall not have been dismissed within sixty
 (60) days or an order for relief shall have been entered against the
 Borrower; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (h)

 	
 There
 shall be entered against the Borrower one or more judgments or decrees in an
 aggregate amount at any one time outstanding in excess of $25,000.00,
 excluding those judgments or decrees that have been (i) satisfied, vacated,
 discharged, stayed or bonded pending appeal within sixty (60) days from the
 entry thereof; or, (ii) with respect to which (and to the extent that) the
 person against whom any such judgment or decree shall have been entered is
 fully insured (excluding applicable deductibles) and with respect to which
 the insurer has admitted in writing its liability for the full amount
 thereof; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (i)

 	
 Any
 execution or attachment shall be issued whereby any substantial part of the
 property of the Borrower shall be taken or attempted to be taken and the same
 shall not have been vacated or stayed within sixty (60) days after the
 issuance thereof; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (j)

 	
 The
 Borrower is enjoined, restrained, or in any way prevented by the order of any
 court or any administrative or regulatory agency from conducting all or a
 material part of the Borrower’s business and such order shall not be vacated
 or stayed within thirty (30) days after the issuance thereof; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (k)

 	
 Any
 document securing this Note ceases to be in full force and effect or shall be
 judicially declared null and void, or the validity or enforceability thereof
 shall be contested by the Borrower; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (l)

 	
 Failure
 of the Borrower to provide financial statements, tax returns or other
 financial information/documentation as reasonably requested by the Lender,
 which failure continues after ten (10) days’ written notice thereof from the
 Lender to the Borrower; or,

 
	
  

 	
  

 	
  

 
	
  

 	
 (m)

 	
 Failure
 of the Borrower to maintain the Borrower’s operating and money market
 accounts with the Lender or an affiliate of the Lender, and to maintain such
 accounts at a level sufficient to cover any advances made under this Note;
 or, 

 
	
  

 	
  

 	
  

 
	
  

 	
 (n)

 	
 The
 Borrower shall be dissolved; or,

 


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Exhibit 10.5


	
  

 	
  

 	
  

 
	
  

 	
 (o)

 	
 The
 Borrower shall be in default, beyond any applicable grace or cure period,
 with respect to any other indebtedness or liability of the Borrower to the
 Lender whether now existing or hereafter existing.

 


15.          LENDER BY ITS ACCEPTANCE HEREOF AND BORROWER HEREBY
VOLUNTARILY, KNOWINGLY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS TO TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS NOTE OR CONCERNING
THE INDEBTEDNESS EVIDENCED HEREBY AND/OR ANY COLLATERAL SECURING SUCH
INDEBTEDNESS, REGARDLESS OF WHETHER SUCH ACTION OR PROCEEDING CONCERNS ANY
CONTRACTUAL OR TORTIOUS OR OTHER CLAIM. BORROWER ACKNOWLEDGES THAT THIS WAIVER
OF JURY TRIAL IS A MATERIAL INDUCEMENT TO LENDER IN EXTENDING CREDIT TO
BORROWER, THAT LENDER WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY
TRIAL WAIVER, AND THAT BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD
AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL
WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.


16.          Demand,
presentment, protest and notice of non-payment and dishonor of this Note are
hereby waived.


17.          This
Note shall be governed by and construed in accordance with the laws of the
State of Minnesota.


18.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 BORROWER:

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 Image Sensing Systems,
 Inc.

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
 /s/ Kris B. Tufto

 	
  

 
	
  

 	
  

 	
      Kris B. Tufto

 	
  

 
	
  

 	
  

 	
      Its President and CEO

 	
  

 


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