Document:

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)

	
Page 3

	
 

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

	
(Continued)

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

Exhibit 10.10

COMMERCIAL SECURITY AGREEMENT

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Principal

 $500,000.00

	
Loan Date

 01-08-2002

	
Maturity

 04-30-2003

	
Loan No

 3757618353

	
Call / Coll

	
Account

	
Officer

 86934

	
Initials

	
References in the shaded area are for Lender’s use only and do not limit
 the applicability of this document to any particular loan or item.

 Any item above containing “***” has been omitted due to text length
 limitations.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Grantor: 

	
 

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

St. Paul, MN 55104 

	
 

	
Lender: 

	
 

	
Wells Fargo Bank Minnesota, N.A.

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

	
 

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

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

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

          All Inventory, Accounts, Equipment and General
Intangibles

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

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

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

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

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Loan No: 3757618353

	
COMMERCIAL SECURITY
 AGREEMENT

 (Continued)

	
Page 2

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Loan No: 3757618353

	
COMMERCIAL SECURITY
 AGREEMENT

 (Continued)

	
Page 3

	
 

	
 

	
 

	
 

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

	
 

	
 

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

	
 

	
 

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

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

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

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Other Defaults. Grantor
 fails to comply with or to perform any other term, obligation, covenant or
 condition contained in this Agreement or in
 any of the Related Documents or to comply with or to perform any term,
 obligation, covenant or condition contained in any other agreement between Lender and Grantor.

	
 

	
 

	
 

	
Default in Favor
 of Third Parties. Should Grantor or any Grantor default under any loan,
 extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other
 creditor or person that may materially affect any of Grantor’s property or Grantor’s or any Grantor’s ability to repay the
 Indebtedness or perform their respective obligations under this Agreement or
 any of the Related Documents.

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
COMMERCIAL
 SECURITY AGREEMENT

	
Loan No: 3757618353

	
(Continued)

	
Page 4

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Insecurity. Lender
 in good faith believes itself insecure.

	
 

	
 

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

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Election of Remedies.
 Except as may be prohibited by applicable law, all of Lender’s rights and
 remedies, whether evidenced by this Agreement, the Related
 Documents, or by any other writing, shall be cumulative and may be exercised
 singularly or concurrently. Election by Lender to pursue any remedy shall not
 exclude pursuit of any other remedy, and an election to make expenditures or
 to take action to perform an obligation of Grantor under this Agreement,
 after Grantor’s failure to perform, shall not affect Lender’s right to
 declare a default and exercise its
 remedies.

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

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

ARBITRATION.

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

Governing Rules. Any
arbitration proceeding will (i) be governed by the Federal Arbitration Act (Title 9
of the United States
Code), notwithstanding any conflicting choice of law provision in
any of the documents between the parties; and (ii)
be conducted by the American Arbitration
Association (“AAA”), or such other administrator as the parties shall mutually
agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim of counterclaim is at
least $1,000,000.00
exclusive of claimed interest, arbitration fees and

	
 

	
 

	
 

	
 

	
COMMERCIAL
 SECURITY AGREEMENT

	
 

	
Loan
 No: 3757618353

	
(Continued)

	
Page 5

	
 

costs in
which case the arbitration shall be conducted in accordance with the AAA’s
optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the “Rules”). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Arbitration proceedings hereunder
shall be conducted at a location mutually agreeable to the parties, or if they
cannot agree, then at a location selected by the AAA in the state of the
applicable substantive law primarily governing the Credit. Any party who fails
or refuses to submit to arbitration
following a demand by any other party shall bear all costs and expenses
incurred by such other party in compelling arbitration of any Dispute. Arbitration may be demanded at any time,
and may be compelled by summary proceedings in Court. The institution and
maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action for
judicial relief. The arbitrator shall award all costs and expenses of
the arbitration proceeding. Nothing contained herein shall be deemed to be a
waiver by any party that is a bank of the protections afforded to it under 12
U.S.C. °91 or any similar applicable state law.

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

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

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

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

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

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
COMMERCIAL
 SECURITY AGREEMENT

	
Loan No: 3757618353

	
(Continued)

	
Page 8

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

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

	
 

	
 

	
 

	
COMMERCIAL
 SECURITY AGREEMENT

	
Loan No: 3757618353

	
(Continued)

	
Page 7

	
 

	
 

	
 

	
 

	
 

	
 

	
GRANTOR:

	
 

	
 

	
 

	
 

	
 

	
IMAGE SENSING SYSTEMS, INC.

	
 

	
 

	
 

	
 

	
 

	
By :  

	

	
 

	
By :  

	

	
 

	

	
 

	
 

	

	
 

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

	
 

	
 

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

	
 

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

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