Document:

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                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of June 14, 2002,
by and among the following three parties:

(1)      Flow Traffic Limited, a company incorporated in the Hong Kong Special
         Administrative Region of the People's Republic of China ("Hong Kong"),
         with its principal offices at Suites 1106-07 Gitic Centre, 28 Queens
         Road East, Wanchai, Hong Kong (the "Company");

(2)      Mr. Mats Johan Billow, an individual resident of Hong Kong, with his
         residence at 31st floor, Flat C, One Robinson Place, Mid Levels, Hong
         Kong (the "Executive"); and

(3)      Image Sensing Systems, Inc., a company incorporated under the laws of
         the State of Minnesota, United States of America, with its principal
         offices at 500 Spruce Tree Centre, 1600 University Avenue West, St.
         Paul, Minnesota (the "Guarantor").

                                   WITNESSETH:

         WHEREAS, the Company desires to secure the services of Executive, and
Executive desires to accept employment with the Company, upon the terms and
conditions set forth herein.

         WHEREAS, the parties are able to reach this Agreement because the
Guarantor has agreed to guarantee to the Executive the performance of the
Company's obligations in accordance with this Agreement.

         WHEREAS, the Executive acknowledges the benefit that the Guarantor is
providing by guaranteeing to the Executive the performance of the Company's
obligations in accordance with this Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Executive, the
Company and the Guarantor, intending legally to be bound, hereby agree as
follows, effective as of April 1, 2002 (the "Effective Date").

1.       EMPLOYMENT

1.1      As of the Effective Date, the Company agrees to employ the Executive
         and the Executive agrees to accept employment as General Manager of the
         Company. For statutory purposes, however, the Executive's continuous
         employment commenced on February 1, 1999. The Executive's position and
         duties on behalf of the Company may be changed from time to time at the
         discretion of the Board of Directors of the Guarantor.

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2.       COMPENSATION AND BENEFITS

2.1      Effective as of the Effective Date, the Company shall pay to the
         Executive the base compensation and benefits set forth in Schedule I.
         Such base compensation and benefit arrangements shall be subject to
         annual review by the Board of Directors of the Guarantor no later than
         April 1 in each year, beginning April 1, 2003.

2.2      In addition to the base compensation payable to the Executive pursuant
         to Section 2.1, the Executive shall be eligible to receive incentive
         compensation in the form of a bonus based on operating results of the
         Company for the year ended December 31, 2002, as set forth in Schedule
         1. The Executive shall be eligible to receive incentive compensation
         relating to subsequent years in accordance with bonus plans which shall
         be established by the Board of Directors of the Guarantor no later than
         April 1 of each such year.

3.       DUTIES OF THE EXECUTIVE

3.1      During the term of Executive's employment under this Agreement, the
         Executive agrees to perform such reasonable employment duties as the
         Board of Directors of the Guarantor shall assign to him from time to
         time.

3.2      The Executive shall, unless prevented by incapacity:

         a.       under this Agreement devote the whole of his time, attention
                  and ability to the carrying out of his duties set out in the
                  Agreement, and in all respects comply with reasonable
                  directions and regulations given or made by the Board of
                  Directors of the Guarantor, and shall well and faithfully
                  serve the Company, the Guarantor and the Group Companies;

         b.       faithfully and diligently perform those duties and exercise
                  such powers consistent with them which are from time to time
                  assigned to or vested in him;

         c.       obey all lawful and reasonable directions of the Board of
                  Directors of the Guarantor;

         d.       use his reasonable endeavors to promote the business interests
                  of the Company, the Guarantor and the Group Companies;

         e.       if and for so long as the Board of Directors of the Guarantor
                  may reasonably require, act as an officer of and carry out
                  duties for any Group Company or hold any other appointment or
                  office as nominee or representative of the Company, the
                  Guarantor or any Group Company;

         f.       work such hours as are reasonably necessary to properly
                  undertake the duties assigned to him and, so far as
                  practicable, to adhere to the normal hours of his place of
                  employment; and

         g.       if called upon to do so and without any further remuneration
                  other than is hereafter mentioned, perform his duties either
                  at the offices of the Company in

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                  Hong Kong or elsewhere as the Board of Directors of the
                  Guarantor may in its reasonable discretion from time to time
                  require for the performance of such duties.

3.3      Subject to any regulations from time to time issued by the Company
         and/or the Guarantor which may apply to him, the Executive shall not
         receive or obtain, directly or indirectly, any discount, rebate,
         commission or other inducement in respect of any sale or purchase of
         any goods or services effected or other business transaction (whether
         or not by him) by or on behalf of the Company, the Guarantor or any
         Group Company, and if he (or any firm or company in which he is
         directly or indirectly engaged, concerned or interested) shall obtain
         any such discount, rebate, commission or inducement he shall
         immediately account to the Company for the amount received by him or
         the amount received by such firm or company.

4.       CONFLICT OF INTEREST

4.1      During the continuance of his employment the Executive shall not
         (unless otherwise agreed in writing by the Board of Directors of the
         Guarantor) undertake any other business or profession, or be or become
         an employee or agent of any other company, firm or person or assist in
         any other business or profession. However, nothing in this paragraph
         shall preclude the Executive from holding or acquiring, by way of bona
         fide investment only, shares representing no more than five percent of
         the issued equity capital of any company quoted or dealt with on a
         recognized stock exchange unless the Board of Directors of the
         Guarantor shall require him not to do so in any particular case on the
         ground that such other company is or may be carrying on a business
         competing or intending to compete with the business of the Company, the
         Guarantor or any Group Company. It is agreed by the Company and the
         Guarantor that the Executive's interest in Berkeley Development Limited
         and the distributor agreement between the Executive and Peek dated May
         27, 1998 do not constitute any conflict of interest between the
         Executive, on the one hand, and the Company and the Guarantor, on the
         other.

5.       SHARE DEALINGS

5.1      The Executive shall comply with all U.S. federal and state securities
         laws and regulations, including, without limitation, the reporting and
         disclosure obligations applicable to him contained in the Securities
         Act of 1933, as amended, and the Securities Exchange Act of 1934, as
         amended, and the regulations promulgated thereunder, and with any
         comparable Hong Kong laws and regulations.

6.       CONFIDENTIALITY

6.1      During the term of this Agreement, and all times after the termination
         of this Agreement, regardless of the nature of such termination,
         Executive covenants and agrees to treat as confidential and not to
         disclose, and to use only for the advancement of the interests of the
         Company, the Guarantor and the Group Companies, all confidential and
         proprietary information and trade secrets of the Company, the Guarantor
         or the Group Companies (even if such information or trade secrets
         became known to the Executive prior to the

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         Effective Date of this Agreement, but while he was otherwise employed
         by the Company, the Guarantor and/or any Group Company), including, but
         not limited to, customer and prospect lists, customer and prospect
         information, plans, information concerning the working of any process
         or invention carried on or used by the Company, the Guarantor or any
         Group Company, discoveries, marketing techniques, price lists, pricing
         policies, information of a third party with respect to which the
         Company, the Guarantor or any Group Company is bound by an obligation
         of confidence and the Executive is aware of that obligation, and other
         confidential or proprietary data of the Company, the Guarantor or any
         Group Company. Information shall not be considered confidential or
         proprietary if it is generally available in the public domain through
         no direct or indirect action of the Executive.

6.2      Upon termination of Executive's employment with the Company, for any
         reason, voluntary or involuntary, the Executive shall immediately
         return to Employer any property, client lists, written information,
         forms, formula, plans, documents or other written or computer material
         or data, software or firmware, or copies of the same, belonging to the
         Company, the Guarantor or any Group Company, or any of their customers,
         within the Executive's possession, and shall not at any time thereafter
         copy, reproduce or otherwise facilitate the future disclosure of the
         same. Following such termination of employment, the Executive shall not
         disclose or use any proprietary, secret or confidential information,
         relating to the clients, products, services, equipment, methods of
         manufacture, inventions, discoveries or trade secrets, price lists,
         computer programs, customer lists, business plans or other confidential
         or proprietary information related to the business of the Company, the
         Guarantor or any Group Company which the Executive acquires, develops,
         designs or produces while employed by the Company and Executive agrees
         that all embodiments of such information shall belong to the Company,
         the Guarantor and/or the Group Company. The Executive shall not retain
         or use for the Executive's account at any time any trade names,
         trademarks, service marks, or other proprietary business designation
         used or owned in connection with the business of the Company, the
         Guarantor or any Group Company. In addition, all notes, memoranda,
         books, documents, records and writing made by the Executive relating to
         the business of the Company, the Guarantor or any Group Company shall
         be and remain the property of the Company, the Guarantor or the Group
         Company and shall be returned by the Executive together with any credit
         cards, keys or other property of or relating to the business of the
         Company, the Guarantor or any Group Company upon request and
         immediately upon the termination for any reason.

7.       MEDICAL EXAMINATION

7.1      The Company reserves the right at any time during the Executive's
         employment (whether or not the Executive is absent from work on account
         of sickness) to require, either independently or at the direction of
         the Board of Directors of the Guarantor, the Executive to undergo an
         examination by a medical practitioner nominated by the Company or the
         Board of Directors of the Guarantor, at the expense of the Company, to
         determine whether the Executive is fit for further employment, and the
         Executive shall authorize such medical practitioner to disclose to and
         discuss with an authorized officer

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         of the Company or the Guarantor the results of the examination and the
         matters which arise from it.

8.       INCAPACITY

8.1      If the Executive shall be prevented by illness (including mental
         disorder), accident or other incapacity from properly performing his
         duties hereunder, he shall report this fact forthwith to the Company
         and the Guarantor, and if the Executive is so prevented he shall
         provide a medical practitioner's statement on the sixth day and weekly
         thereafter. Immediately following his return to work after a period of
         absence, the Executive shall complete appropriate documentation
         detailing the reason for his absence.

8.2      If the Executive shall be absent from his duties hereunder due to
         illness (including mental disorder), accident or other incapacity duly
         certified in accordance with the provisions of Section 8.1 hereof he
         shall be paid his base salary hereunder for up to 120 days' absence in
         any period of 12 months and thereafter such remuneration, if any, as
         the Board of Directors of the Guarantor shall in its discretion from
         time to time allow; provided that there shall be deducted from or set
         off against such remuneration any sickness allowance or other benefit
         provided for in the Employment Ordinance (Cap. 57) (or any similar law
         then in effect) to which the Executive is entitled whether or not
         recovered.

8.3      If the Executive is incapacitated for an aggregate of at least 120
         working days in the preceding 12 months, then the Company, at the
         direction of the Board of Directors of the Guarantor, may terminate
         this Agreement either during or not later than one month after the end
         of such period of incapacity in accordance with Section 9.2.

9.       TERMINATION OF AGREEMENT

9.1      The Executive may terminate this Agreement for any reason upon six
         months' written notice to the Company and the Guarantor; provided,
         however, that the effective date of termination may not occur prior to
         January 1, 2004.

9.2      The Company may terminate this Agreement for any reason at any time on
         or after January 1, 2004, or on an earlier date pursuant to the
         provisions of Section 8.3 above, by payment of seven days' wages in
         lieu of notice; provided, however, that in the event of any such
         termination by the Company, other than a termination pursuant to
         Section 9.3 below, the Company shall pay to the Executive severance
         equal to one year of Executive's base compensation in effect as of the
         date of termination , including salary, holiday passage and housing
         allowance but excluding any bonus payments ("Severance Payment");
         provided further, however, that there shall be deducted from or set off
         against such Severance Payment the payment of seven days' wages in lieu
         of notice required by this Section 9.2, and any severance payment, long
         service payment or similar payment to which the Executive is entitled
         under the Employment Ordinance (Cap. 57) (or any similar law then in
         effect).

9.3      The Company may terminate this Agreement at any time without prior
         notice, and without the payment of any Severance Payment pursuant to
         Section 9.2 hereof, if the Company finds in its discretion that the
         Executive: (a) willfully disobeys a lawful and

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         reasonable order from the Company or the Guarantor, or from any Group
         Company for which the Executive performs services; (b) misconducts
         himself, such conduct being inconsistent with the due and faithful
         discharge of his duties; (c) engages in fraud or dishonesty; (d) is
         convicted of a felony or any crime of fraud or dishonesty; (e) is
         habitually neglectful in his duties; or (f) the Company has any other
         grounds on which it would be entitled to terminate the Agreement
         without notice at common law.

9.4      On the termination of this Agreement for whatever reason, the Executive
         shall at the request of the Company or the Guarantor resign from all
         other appointments or offices which he holds as nominee or
         representative of the Company or any Group Company and if he should
         fail to do so within seven days, the Company and/or the Guarantor is
         hereby irrevocably authorized to appoint some person in his name and on
         his behalf to sign any documents or do any things necessary or
         requisite to give effect to these. Such resignation(s) shall be without
         prejudice to any claims which the Executive may have against the
         Company or the Guarantor arising out of this Agreement or the
         termination thereof.

9.5      The Executive shall at all times, either while employed or after
         termination of this Agreement, refrain from taking any action or making
         any untrue or misleading statements, either written or oral, which are
         intended to and do disparage the goodwill or reputation of the Company,
         the Guarantor or any Group Company, or their directors, officers,
         employees, representatives and agents.

9.6      Notwithstanding any other provision herein to the contrary, the
         obligations of the Executive under paragraphs 6, 9.5 and 10 hereof
         shall survive the termination (for any reason) of the Executive's
         employment under this Agreement.

10.      NON-COMPETITION AND NON-SOLICITATION

10.1     The Executive covenants and agrees that in consideration of any
         severance or long service payment owed to the Executive upon
         termination of this Agreement, for a period beginning on the Effective
         Date and continuing until the first anniversary of the termination of
         the Executive's employment with the Company for any reason (i.e., 12
         months from termination) (the "Non-Competition Period"), the Executive
         shall not, directly or indirectly, whether as an employee, independent
         contractor, member of limited liability company, partner, shareholder
         in a corporation, adviser, consultant, lender, equity investor or
         otherwise:

         a.       be engaged, concerned or interested in any capacity whether as
                  director, principal, agent, partner, consultant, employee or
                  otherwise in any other business of whatever kind which is
                  wholly or partly in competition with the business of the
                  Company or the Guarantor or the business of any other Group
                  Company in which the Executive has been involved to a material
                  extent during the period of 12 months prior to the termination
                  of his employment for any reason.

         b.       provide technical, commercial or professional advice to any
                  business concern which is wholly or partly in competition with
                  the business of the Company or the

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                  Guarantor or the business of any other Group Company in which
                  the Executive has been involved to a material extent during
                  the 12-month period prior to the termination of his employment
                  for any reason;

         c.       provide any service to any Non-Competition Client (as
                  hereinafter defined) that is of the type of, or otherwise in
                  any manner directly or indirectly competitive with, any
                  services provided by the Company, the Guarantor or any Group
                  Company. As used in this Agreement, "Non-Competition Client"
                  means any person, company or entity that is or was a client of
                  the Company, the Guarantor or any Group Company or their
                  predecessors during the term of the Executive's employment
                  with the Company, the Guarantor or any Group Company or their
                  predecessors. (Non-Competition Client shall include all
                  business units or divisions of the company or entity and shall
                  not be limited to the business unit or division of the company
                  or entity that the Company, the Guarantor or any Group Company
                  or their predecessors had dealings with);

         d.       solicit or attempt to solicit any Non-Competition Client or
                  otherwise interfere with the relationship between
                  Non-Competition Clients for any products or services where
                  such customers were carrying on trade with the Company, the
                  Guarantor or any Group Company at any time during the 12
                  months prior to Executive's termination;

         e.       interfere or seek to interfere or take steps as may interfere
                  with the continuance of supplies to the Company, the Guarantor
                  or any Group Company from any suppliers who have been
                  supplying components materials or services to the Company, the
                  Guarantor or any Group Company at any time during the last 12
                  months of the Executive's employment hereunder.

         f.       request, induce or attempt to influence any Non-Competition
                  Client to curtail or cancel any business it transacts with the
                  Company, the Guarantor or any Group Company;

         g.       request, induce or attempt to influence any employee or
                  independent contractor of the Company, the Guarantor or any
                  Group Company to terminate his or her employment with the
                  Company, the Guarantor or the Group Company, or attempt to
                  dissuade any then current employee or independent contractor
                  of the Company, the Guarantor or any Group Company from
                  continuing employment with the Company, the Guarantor or the
                  Group Company.

         h.       hire (or retain as an independent contractor), on the
                  Executive's behalf or on behalf of any other party, any person
                  who is or was an employee or an independent contractor of the
                  Company, the Guarantor or any Group Company at any time within
                  one year preceding such person's employment or retention by
                  Executive or such other party.

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11.      ENFORCEMENT; REMEDIES; CONSTRUCTION.

11.1     The Executive acknowledges, covenants and agrees that because the
         breach or threatened breach of the covenants, or any of them, contained
         in Sections 6, 9.5 and 10 shall result in immediate and irreparable
         injury to the Company, the Guarantor and the Group Companies, the
         Company and the Guarantor will be entitled to an injunction restraining
         the Executive and/or any of the Executive's affiliates, future
         employers and entities which the Executive serves as a contractor from
         any violation of Sections 6, 9.5 and 10 to the fullest extent allowed
         by law.

11.2     The Executive agrees that in the event the Executive breaches the
         covenants, or any of them, contained in Sections 6, 9.5 and 10, then
         the Non-Competition Period shall be automatically extended by the
         length of time any such breach remains continuing.

11.3     The Executive acknowledges and agrees that

         a.       the covenants in Sections 6, 9.5 and 10 are all reasonable in
                  all respects and are necessary to protect the legitimate
                  business and competitive interests of the Company, the
                  Guarantor and the Group Companies, and

         b.       each of the covenants set forth in Sections 6, 9.5 and 10 and
                  the subdivisions thereof is separately and independently
                  given, and each such covenant is intended to be enforceable
                  separately and independently of the other such covenants,
                  including, without limitation, enforcement by injunction;

         provided, however, that the invalidity or unenforceability of this
         Agreement in any respect shall not affect the validity or
         enforceability of this Agreement in any other respect. In the event
         that any provision of this Agreement shall be held invalid or
         unenforceable by a court of competent jurisdiction by reason of the
         scope or duration thereof or for any other reason, such invalidity or
         unenforceability shall attach only to the particular aspect of such
         provision found invalid or unenforceable as applied and shall not
         affect or render invalid or unenforceable any other provision of this
         Agreement or the enforcement of such provision in other circumstances,
         and, to the fullest extent permitted by law, this Agreement shall be
         construed as if the scope or duration of such provision or other basis
         on which such provision has been challenged had been more narrowly
         drafted so as not to be invalid or unenforceable.

12.      GENERAL

12.1     Prior Agreements. This Agreement sets out the entire agreement and
         understanding of the parties regarding the Executive's employment by
         the Company and supersedes any previous contracts of employment or any
         agreements for the provision of services by the Executive to the
         Company (which shall be deemed to have been terminated by mutual
         consent). The parties hereto acknowledge that (a) the Guarantor, the
         Executive and Berkeley Development Limited are entering into an
         Amendment to Share Sales and Purchase Agreement dated the date hereof,
         (b) the Guarantor and the Executive are entering into a Non-Incentive
         Stock Option Agreement dated the date hereof, and (c)

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         such agreements shall remain in full force and effect following the
         execution of this Agreement.

12.2     Accrued Rights. The expiration or termination of this Agreement however
         arising shall not operate to affect such of the provisions of this
         Agreement as are express to operate or have effect after then and shall
         be without prejudice to any accrued rights or remedies of the parties.

12.3     Definitions. In this Agreement, the expressions "subsidiary" and
         "holding company" shall have the respective meanings as defined in
         Section 2 of the Companies Ordinance (or any statutory re-enactment
         thereof). The Company, any holding company for the time-being of the
         Company, any subsidiaries for the time-being of the Company and any
         such holding company are collectively called the "Group." Any reference
         to a "Group Company" in this Agreement shall mean any company in the
         Group.

12.4     Proper Law; Jurisdiction. The validity, construction and performance of
         this Agreement shall be governed by the Laws of Hong Kong. The parties
         hereby submit to the Hong Kong courts or Labour Tribunal in respect of
         any dispute or matter arising out of or in connection with this
         Agreement and the Executive's employment hereunder.

12.5     Notices. Any notice or other communication to any party in connection
         with this Agreement shall be sent to all other parties to this
         Agreement, shall be in writing and shall be sent by personal delivery,
         facsimile transmission or express courier requiring signature for
         delivery, addressed to such parties at the addresses set forth in the
         first paragraph of this Agreement or at such other address as such
         parties shall have specified to the other parties hereto in writing.
         Any such notice shall be effective on the date of delivery thereof if
         manually delivered, the date of sending thereof if sent by facsimile
         transmission (with receipt electronically acknowledged), or the second
         business day after delivery to an express courier if sent by express
         courier; provided that any notice or communication changing the address
         of any party shall be effective and deemed given only upon its receipt.

12.6     Personal Data. The Executive unconditionally and irrevocably consents
         to the Company's disclosure and/or transfer of any personal data
         collected from the Executive and related to his employment under this
         Agreement (including without limitation his name, residential address,
         nationality, position, remuneration, bank account details and the
         contents of this Agreement as may be amended and/or supplemented from
         time to time), whether now or in the future, to affiliates of the
         Company for purposes that are directly and/or indirectly related to
         and/or expedient for the Company's and its affiliates' business
         activities and operations.

13.      GUARANTEE

13.1     The Guarantor guarantees to the Executive the performance of the
         Company's obligations in accordance with this Agreement.

13.2     The Guarantor guarantees to pay, on demand, any sum which the Company
         fails to pay to the Executive in accordance with this Agreement.

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13.3     This is a continuing guarantee which will remain in force until all the
         Company's obligations under this Agreement have been fulfilled.

13.4     The Guarantor's liability under this paragraph 13 will not be
         discharged or affected by any act, omission or circumstance which, but
         for this provision, would discharge the Guarantor to any extent,
         including any legal limitation, disability or incapacity or any
         amendment, waiver or release affecting any of the parties, any other
         person, this Agreement or any other document or any change in the
         constitution of the Guarantor.

13.5     The Guarantor shall not exercise any rights of subrogation,
         contribution, indemnity or set-off or counterclaim against the Company
         so long as any obligation of the Company under this Agreement remains
         unfulfilled.

13.6     Payments by the Guarantor shall be made without set-off, counterclaim,
         withholding or condition of any kind.

13.7     Any guaranteed moneys which are not recoverable from the Company for
         any reason will, nevertheless, be recoverable from the Guarantor as
         principal debtor, by way of indemnity, on the Executive's demand.

13.8     If the Guarantor fails to pay any sum under this Agreement, including a
         sum payable under this paragraph 13.8, on its due date for payment the
         Guarantor shall pay default interest on such sum from the due date to
         the date of payment (both before and after any judgment) at the rate of
         3% per annum above the prime rate of The Hong Kong & Shanghai Banking
         Corporation Limited, for Hong Kong Dollars in Hong Kong from time to
         time. Such interest shall accrue and be calculated daily (on a 365-day
         year basis), be payable on demand and be compounded monthly on the
         first day of each calendar month and shall itself bear interest
         accordingly.

13.9     The Guarantor hereby represents and warrants to the Executive that the
         execution, delivery and performance of this Agreement has been duly
         authorized by all necessary action on the part of the Guarantor's board
         of directors and the Agreement constitutes a valid and legally binding
         obligation of the Guarantor.

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IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of the
parties hereto the day and year first before written.

/s/  Mats Johan Billow
     -----------------
Mats Johan Billow

In the presence of:

------------------------------------
Name:

FLOW TRAFFIC LIMITED

By: /s/ Richard Magnuson
    --------------------
Name:  Richard Magnuson
Title:  Chairman of the Board

In the presence of:

------------------------------------
Name:

IMAGE SENSING SYSTEMS, INC.

By:  /s/ James Murdakes
     ------------------
Name:  James Murdakes
Title:  Chief Executive Officer

By: /s/ Panos Michalopoulos
    -----------------------
Name: Panos Michalopoulos
Title: Director

In the presence of:

------------------------------------
Name:

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                                   Schedule I

                   (To the Agreement dated June 14, 2002 among
    Flow Traffic Limited, Mats Johan Billow and Image Sensing Systems, Inc.)

            Remuneration and Benefits, effective from April 1, 2002:

Base                   HK$122,000 per month, payable on a 13-month basis
Compensation:          (such 13th month payment to be paid in December of
                       each year), for total annual base compensation of
                       HK$1,586,000, consisting of salary, holiday passage and
                       housing allowance (if any) in such proportions as the
                       Executive may determine from time to time. Executive
                       agrees to provide notice to the Company of any such
                       determinations on a timely basis.

Housing                That portion of the Executive's base compensation
Allowance:             determined by the Executive in accordance with the
                       provisions set forth above under "Base Compensation."

Incentive              The Executive shall be eligible to receive incentive
Compensation:          compensation in the form of a cash bonus as follows:

                       For the year ended December 31, 2002, the Executive shall
                       be paid, on or before March 31, 2003, a cash incentive
                       bonus equal to the aggregate of the amounts to which the
                       Executive may be entitled under each of the following two
                       paragraphs. Executive's eligibility for a cash incentive
                       bonus under each such paragraph is based on the
                       achievement by either the Company of certain net income
                       targets. In each case, net income shall be determined
                       after taking into consideration any and all bonuses
                       required to be paid to Executive and all other employees
                       by the Company pursuant to this Schedule I and any other
                       agreements or arrangements with the Company's employees.

                                -        If for the year ending December 31,
                                         2002, the Company, on a
                                         non-consolidated basis, achieves
                                         pre-tax net income of at least
                                         US$181,818, the Executive shall receive
                                         a bonus equal to 10% of such pre-tax
                                         net income; provided, however, that the
                                         maximum bonus payable under this
                                         provision shall be US$25,000.

                                -        If for the year ending December 31,
                                         2002, the Company, on a
                                         non-consolidated basis, achieves
                                         pre-tax net income in excess of
                                         US$250,000, then the Company shall
                                         provide the Executive with a cash bonus
                                         pool equal to 20% of such excess, which
                                         shall be allocated among the Executive
                                         and all other employees of the Company
                                         in the Executive's discretion;
                                         provided, however, that the Executive
                                         may not receive more than 25% of such
                                         bonus pool.

                                       12

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                       All bonuses shall be payable, at the Executive's option,
                       in Hong Kong Dollars at the exchange rate then in effect.

                       The Executive shall be eligible to receive incentive
                       compensation relating to subsequent years in accordance
                       with bonus plans which shall be established by the Board
                       of Directors of the Guarantor no later than April 1 of
                       each such year.

Provident              The Company shall match the Executive's aggregate
Fund:                  contributions under the Mandatory Provident Fund Scheme
                       Ordinance (Cap. 485 of the laws of Hong Kong) and the
                       Royal Skandia Managed Pension Account (or such other
                       pension plans as the Executive may nominate), in such
                       proportions as the Executive may from time to time
                       direct, up to a maximum of 5% of the Executive's base
                       compensation.

Option to              The Guarantor shall grant to the Executive an option to
Purchase               purchase 100,000 shares of the Guarantor's common stock,
Common                 which option shall be issued pursuant to Guarantor's 1995
Stock of               Long-Term Incentive and Stock Option Plan, as amended
Guarantor:             from time to time (the "Plan"), and shall be subject
                       to the terms and conditions of the Plan and a
                       Non-Incentive Stock Option Agreement between the
                       Guarantor and the Executive substantially in the form
                       attached as Exhibit A hereto.

Expenses:              Out-of-pocket expenses incurred by the Executive in the
                       course of business will be reimbursed against periodic
                       claims.

Medical                The Executive shall be eligible to participate in any
Insurance:             health care benefit plan established by the
                       Company for the benefit of employees to the extent that
                       the Executive meets the requirements for such plan. In
                       the event no such plan is established or the Executive
                       does not meet such requirements, the Company will pay
                       insurance premiums to a medical insurance company
                       approved by the Board of Directors of the Guarantor to
                       provide coverage for the Executive and his immediate
                       family.

Annual Leave:          In addition to the statutory holidays, the Executive
                       shall be entitled to 20 working days' paid annual leave
                       during each calendar year to be taken at such time or
                       times as may be agreed by the Company. For the calendar
                       year during which the Executive's employment under this
                       Agreement commences or terminates, he shall be entitled
                       to such proportion of his annual leave entitlement as
                       the period of his employment in each such year bears to
                       one calendar year. Upon termination of his employment
                       for whatever reason he shall, if appropriate, either be
                       entitled to a payment in lieu of any outstanding annual
                       leave entitlement or be required to pay to the Company
                       any salary receive in respect of annual leave taken in
                       excess of his proportionate annual leave entitlement.

                                       13<PAGE>

                                                                    EXHIBIT 10.2

                                 AMENDMENT NO. 3
                                       TO
                       SHARES SALE AND PURCHASE AGREEMENT

         Amendment No. 3, dated as of June 14, 2002, by and among Image Sensing
Systems, Inc., a company incorporated in Minnesota, USA ("ISS"), Berkeley
Development Limited, a company incorporated in the British Virgin Islands
("BDL") and Mr. Mats Johan Billow, a resident of Hong Kong ("Billow") (the
"Amendment"), to the Shares Sale and Purchase Agreement dated November 28, 2001,
as amended December 31, 2001 and April __, 2002, by and among ISS, BDL, Billow
and Grove Place Limited, a company incorporated in the British Virgin Islands
("GPL").

         WHEREAS, under the Agreement, BDL and Billow (collectively, the "Billow
Vendors") and GPL (together with the Billow Vendors, the "Vendors") sold, and
ISS purchased, all of the outstanding shares, par value HK$1.00 per share, of
Flow Traffic Limited, a company incorporated in Hong Kong ("FTL"), owned by the
Vendors; and

         WHEREAS, Amendment No. 2 to the Share Sales and Purchase Agreement
provides that any amendment to Section 6(a) of the Agreement may be effected in
a writing signed only by Billow, BDL and ISS; and

         WHEREAS, Section 6(a) of the Agreement calls for the payment to the
Billow Vendors of an additional US$50,000 so long as FTL achieves a certain
level of audited net profit before tax of HK$1,418,000 or greater for the
financial year 2002; and

         WHEREAS, the Board of Directors of ISS has determined that ISS will
have the ability to influence FTL's 2002 revenues and that it would therefore be
equitable to accelerate payment to the Billow Vendors of the US$50,000
additional payment contemplated in Section 6(a) of the Agreement, without the
requirement that FTL achieve any specified financial target.

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:

1.       Amendment of the Agreement.  The Agreement shall be amended as follows:

                  Section 6(a) of the Agreement is hereby amended in its
                  entirety to read as follows:

                  "On December 31, 2002, ISS shall pay Billow Vendors an
                  additional payment in consideration of the Billow Sale Shares
                  of US$50,000, which amount will be paid by wire transfer to
                  such account in Hong Kong as nominated by Billow."

<PAGE>

2.       Counterparts. This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

         IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first above written.

                                         IMAGE SENSING SYSTEMS, INC.

                                         /s/ James Murdakes
                                         ------------------
                                         Title:  Chairman of the Board

                                         /s/ Panos Michalopoulos
                                         -----------------------
                                         Title: Director

                                         BERKELEY DEVELOPMENT LIMITED

                                         /s/ Mats Johan Billow
                                         ---------------------
                                         Title:

                                         MR. MATS JOHAN BILLOW

                                         /s/ Mats Johan Billow
                                         ---------------------

                                       2

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