Document:

Exhibit 10.1

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

          This
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, including attached Appendix B
(collectively, the “Agreement”), is made by and between Image Sensing Systems,
Inc., and its subsidiaries and divisions (collectively, “ISS”), and Kris B.
Tufto (“Tufto”) as of the 23rd day of April, 2014 (the “Effective
Date”).

RECITALS:

          A.          ISS
and Tufto entered into that certain Employment Agreement effective on or about
October 30, 2012 (the “Original Agreement”) under which Tufto has served and
continues to serve as the President/CEO of ISS, and ISS wants Tufto, and Tufto
wishes, to continue to serve in that capacity.

          B.          ISS
and Tufto have negotiated the terms of Tufto’s employment as President/CEO to
include change in control provisions, and they want to amend and restate the
Original Agreement to include such provisions. 

          C.          ISS
and Tufto mutually agree to the terms set forth in this Agreement.

          NOW
THEREFORE, in consideration of the convents and conditions contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ISS and Tufto agree as follows:

AGREEMENT:

	
  

 	
  

 	
  

 	
  

 
	
 1.

 	
 Employment;
 Definitions. 

 
	
  

 	
  

 	
  

 	
  

 
	
 (a)

 	
 Employment.
 Tufto is an at-will employee, and his employment may be terminated by either
 Tufto or ISS at any time, with or without cause. Tufto has and will continue
 to serve as ISS’s President and CEO. 

 
	
  

 	
  

 	
  

 	
  

 
	
 (b)

 	
 Definitions.
 For purposes of this Agreement, the following terms shall have the following
 meanings:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (i)

 	
 “Change in
 Control” means any one or more of the following events occurring after the
 Effective Date:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (A)

 	
 the purchase
 or other acquisition by any one person, or more than one person acting as a
 group, of capital stock of ISS that, together with ISS’s capital stock
 beneficially owned by such person or group (as the term “beneficial
 ownership” is defined in Rule 13d-3 under the Securities Exchange Act of 1934
 (the “Exchange Act”)), constitutes more than 50% of the total combined value
 or total combined voting power of all classes of capital stock issued by ISS;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (B)

 	
 a merger or
 consolidation to which ISS is a party if the individuals and entities who
 were shareholders of ISS immediately before the effective date of such merger
 or consolidation have, immediately following the effective date of such
 merger or consolidation, beneficial ownership (as defined in Rule 13d-3 under
 the Exchange Act) of less than 50% of the total combined voting power of all
 classes of securities issued by the surviving entity for the election of
 directors of the surviving corporation;

 

	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (C)

 	
 the purchase
 or other acquisition by any one person, or more than one person acting as a
 group, of all or substantially all of the assets of ISS during the 12-month
 period ending on the date of the most recent purchase or other acquisition of
 such assets by such person or persons;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (D)

 	
 a change in
 the composition of ISS’s Board of Directors at any time during any
 consecutive 12-month period such that the “Incumbent Directors” (as the term
 “Incumbent Directors is hereinafter defined) cease for any reason to
 constitute greater than 50% of the members of ISS’s Board of Directors. For
 purposes of this event, the term “Incumbent Directors” means those members of
 ISS’s Board of Directors who either:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (1)          were
 members of ISS’s Board of Directors on the Effective Date; or

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (2)          were
 elected or appointed by, or on the nomination or recommendation of, at least
 a majority of the members of the then-existing Board of Directors (either by
 specific vote or by approval of ISS’s proxy statement in which such
 individual is named as a nominee for director without objection to such
 nomination);

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (E)

 	
 ISS’s
 shareholders approve any plan or proposal for the liquidation or dissolution
 of ISS; or

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (F)

 	
 any other
 change in control of ISS of a nature that would be required to be reported
 pursuant to Section 13 or 15(d) of the Exchange Act, whether or not ISS is
 then subject to such reporting requirements.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 In all
 cases, the determination of whether a Change in Control has occurred shall be
 made in accordance with Section 409A of the Code.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (ii)

 	
 “Change in
 Control Termination” means any of the following events occurring upon or
 within 12 months after a Change in Control:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (A)

 	
 the
 termination of Tufto’s employment by ISS for any reason other than “With
 Cause” (as that term is hereinafter defined); or

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (B)

 	
 the
 termination of employment with ISS by Tufto for “Good Reason,” (as that term
 is hereinafter defined), which termination shall be accomplished by, and be
 effective upon, Tufto giving written notice to ISS of his decision to
 terminate within 10 days after the expiration of the 30-day cure period
 provided to ISS as described in the first paragraph of Section 1(b)(iv). 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 For purposes
 of Section 6(d), with respect to the timing of payments thereunder, the term
 “Change in Control Termination” means Tufto’s Termination Date.

 

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 (iii)

 	
 “Code” means
 the Internal Revenue Code of 1986, as amended, and the regulations, notices
 and other guidance of general applicability issued thereunder.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (iv)

 	
 “Fair Market
 Value” means the per share closing price of ISS’s common stock or any other
 securities into which ISS’s common stock has been converted that are subject
 to Options held by Tufto as quoted on the NASDAQ Stock Market or any other
 exchange on which such common stock or other securities are principally
 traded or, if such common stock or securities are not traded on any exchange,
 the fair market value of such common stock or securities as determined in
 good faith by the Board of Directors of ISS or its successor.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (v)

 	
 “Good Reason”
 means Tufto has provided written notice to ISS within 90 days following the
 occurrence of any of the following events, provided the event results in a
 negative change to Tufto, which notice describes the event in reasonable
 detail and the facts and circumstances claimed by Tufto to constitute Good
 Reason, and ISS has not cured the event within 30 days after receiving such
 notice from Tufto:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (A)

 	
 the
 assignment of Tufto without Tufto’s consent to a position with material
 responsibilities or duties of a lesser status or degree than the position of
 President or CEO of ISS;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (B)

 	
 the
 relocation of Tufto’s principal office for ISS business, without Tufto’s
 consent, to a location more than 50 miles outside Tufto’s work location as of
 the date of this Agreement;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (C)

 	
 a material
 reduction, in the aggregate, in base salary, variable pay opportunities or
 the employee benefits in which Tufto is entitled to participate irrespective
 of any standard waiting periods with respect to the same, unless such
 material reduction is generally applicable to all employees of ISS with a
 similar ranking to Tufto; or

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (D)

 	
 a material
 breach or a material adverse modification of this Agreement by ISS without
 Tufto’s consent.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 Termination
 for “Good Reason” shall not include Tufto’s death or a termination for any
 reason other than one of the events described in clauses (A) through (D) of
 this Section 1(b)(iv).

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (vi)

 	
 “Termination
 Date” means the date upon which Tufto’s “separation from service” with ISS
 within the meaning of Section 409A(a)(2)(A)(i) of the Code (with “ISS” for
 purposes of this paragraph to include any business entity that is treated as
 a single employer with ISS under the rules of Section 414(b) and (c) of the
 Code).

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (vii)

 	
 “With Cause”
 means the occurrence of any of the following events:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (A)

 	
 the
 conviction of Tufto of, or a plea of “guilty” or “no contest” by Tufto to, a
 felony under the laws of the United States or any state thereof or the
 conviction of Tufto of, or a plea of “guilty” or “no contest” by Tufto to,
 any act involving moral turpitude;

 

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 (B)

 	
 Tufto’s
 breach of fiduciary duty involving personal profit;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (C)

 	
 Tufto’s
 willful and material misconduct in the performance of duties assigned to Tufto
 as the President/CEO of ISS;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (D)

 	
 Tufto’s
 consistent failure to perform the reasonable stated duties assigned to Tufto
 under this Agreement; or

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (E)

 	
 Illegal or
 unethical business practices by Tufto, including but not limited to the
 commission of fraud, misappropriation or embezzlement in connection with
 ISS’s business.

 

          2.          Duties.
Tufto will devote his full professional time, attention and efforts to the
business and affairs of ISS during his employment with ISS, and Tufto agrees
that, to the best of his ability and experience, and at all times, he will
conscientiously perform the duties and obligations assigned to him. 

	
  

 	
  

 	
  

 
	
  

 	
 3.

 	
 Compensation.

 
	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Salary.
 Tufto’s base salary will be $300,000 per year for the year ending
 December 31, 2014, less all required withholdings and deductions,
 payable in accordance with ISS’s standard payroll procedures in effect from
 time to time. Tufto’s performance will be evaluated by ISS’s Board of
 Directors from time to time in its discretion but no less often than
 annually. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Bonuses.
 Tufto’s bonus plan will be determined by ISS’s Board of Directors from time
 to time in its discretion but no less often than annually.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Employee
 Benefits. Tufto will be entitled to insurance and
 other benefits in accordance with ISS’s standard and executive benefits in
 effect from time to time. These benefits include several elections that must
 be made by Tufto. Planbooks, Summary Plan Descriptions, and Plan Legal
 Documents containing formal descriptions of all available benefits have been
 or will be provided to Tufto. ISS is entitled to change, modify, or
 discontinue such benefits at its sole discretion.

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Vacation.
 Tufto is entitled to up to three weeks of vacation each year in accordance
 with ISS’s vacation policy in effect from time to time.

 

          4.          Reimbursement
of Reasonable Travel and Business Expenses. ISS will, in accordance with
its policies in effect from time to time, reimburse Tufto for all reasonable
business expenses incurred by Tufto in connection with the performance of his
duties under this Agreement, upon submission of the necessary documentation
required pursuant to ISS’s standard policies and record keeping procedures.
Tufto also agrees that he will adhere to ISS’s current travel policy.

          5.          Confidentiality,
Noncompetition and Invention Assignment. Tufto has signed Appendix A
to the Original Agreement, and Tufto expressly reaffirms the terms of Section 5
of and Appendix A to the Original Agreement; the form of Appendix A
to the Original Agreement is attached as Appendix A to this Agreement
for reference. 

4

          6.          Severance
upon Termination of Employment.

	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Voluntary
 Termination. Should Tufto terminate his employment
 for any reason other than for Good Reason as provided in Section 1(b)(ii)(B)
 and Section 1(b)(iv) of this Agreement, (i) ISS shall pay Tufto all earned
 and unpaid amounts due to him for salary through the termination date and a
 pro rata portion of any incentive pay to which, at ISS’s discretion, Tufto
 would have been paid had he remained in ISS’s employ; (ii) Tufto shall have
 90 days after the date of the termination of his employment (or such shorter
 period as is provided in the Image Sensing Systems, Inc. 2005 Stock Incentive
 Plan, as amended (the “Plan”), or any successor or replacement plan of a
 similar nature, or an agreement governing the Option) to exercise all Options
 owned by Tufto that are exercisable as of such termination date; and (iii) any
 other Options, Restricted Stock and Restricted Stock Units owned by Tufto
 shall automatically terminate. Except as expressly provided herein, to the
 extent that there is any conflict between the provisions of this Section 6(a)
 and the provisions of the Plan or any agreement governing Options, Restricted
 Stock and Restricted Stock Units owned by Tufto, the provisions of this
 Section 6(a) shall govern. For purposes of this Agreement, the terms
 “Option,” “Restricted Stock” and “Restricted Stock Units” shall have the
 meaning set forth in the Plan or any successor or replacement plan of a
 similar nature.

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Termination
 by ISS “With Cause.” Should ISS terminate Tufto’s
 employment With Cause, Tufto shall not be entitled to any severance, and all
 of the Options, Restricted Stock and Restricted Stock Units owned by Tufto
 shall automatically terminate; provided, however, that Tufto shall have
 thirty (30) days to cure any alleged breach, failure, or misconduct under
 Section 1(b)(vi)(D) of this Agreement, if such alleged breach, failure or
 misconduct is curable, after ISS provides Tufto written notice of the actions
 or omissions constituting such breach, failure, or misconduct. Except as
 expressly provided herein, to the extent that there is any conflict between the
 provisions of this Section 6(b) and the provisions of the Plan or any
 agreement governing Options, Restricted Stock and Restricted Stock Units
 owned by Tufto, the provisions of this Section 6(b) shall govern.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Termination
 by ISS “Without Cause.” Should ISS terminate Tufto’s
 employment for any reason other than (1) With Cause, (2) a Change in Control
 Termination, or (3) because of Tufto’s inability to perform his duties
 because of death or disability, upon entry into a release agreement provided
 by ISS in a form substantially similar to that set forth in Appendix B to
 this Agreement (the “Release Agreement”), (i) Tufto shall be entitled to 12
 months of salary continuation, without eligibility for bonus; and (ii) he
 shall have 90 days after the date of the termination of his employment (or
 such shorter period as is provided in the Plan, or any successor or
 replacement plan of a similar nature, or an agreement governing the Option)
 to exercise all Options owned by Tufto that are exercisable as of such
 termination date. Any other Options, Restricted Stock and Restricted Stock
 Units owned by Tufto shall automatically terminate upon termination of
 Tufto’s employment under this Section 6(c). ISS and Tufto have the ability,
 however, at any time, to terminate this Agreement by mutual written
 agreement, with or without the severance benefit. Except as expressly
 provided herein, to the extent that there is any conflict between the
 provisions of this Section 6(c) and the provisions of the Plan or any agreement
 governing Options, Restricted Stock and Restricted Stock Units owned by
 Tufto, the provisions of this Section 6(c) shall govern.

 

5

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Change in
 Control Termination. Subject to the conditions
 contained in this Agreement, upon a Change in Control Termination, Tufto
 shall be entitled to the following compensation and benefits:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 Upon Tufto’s
 entry into the Release Agreement, ISS shall pay to Tufto a severance payment
 equal to (A) twice the amount of Tufto’s annual salary from ISS (or any
 predecessor entity or related entity) in effect as of the date of the Change
 in Control Termination plus (B) the total annual incentive pay to which
 Tufto is entitled from ISS (or any predecessor entity or related entity) as
 of the date of the Change in Control Termination; for purposes of this
 paragraph, the terms “predecessor entity” and “related entity” shall have the
 meanings set forth in Section 280G of the Code.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 Any and all
 outstanding Options owned by Tufto with a per share exercise price that is
 less than the Fair Market Value on the trading day before the date of the
 Change in Control Termination shall become immediately vested and exercisable
 as of the date of the Change in Control Termination, and Tufto shall have 90
 days after the date of the Change in Control Termination (or such shorter
 period as is provided in the Plan, or any successor or replacement plan of a
 similar nature, or an agreement governing the Option) to exercise all of such
 Options; any other Options owned by Tufto shall automatically terminate; and
 the risks of forfeiture on any outstanding Restricted Stock or Restricted
 Stock Units owned by Tufto shall immediately lapse. Except as expressly
 provided herein, to the extent that there is any conflict between the
 provisions of this Section 6(d)(ii) and the provisions of the Plan or any
 agreement governing Options, Restricted Stock and Restricted Stock Units
 owned by Tufto, the provisions of this Section 6(d)(ii) shall govern.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)

 	
 ISS,
 pursuant to federal and state law, will provide, for a period beginning on
 the date of Tufto’s Change in Control Termination and ending on the earlier
 of the date that Tufto obtains new employment or two years after such date of
 the Change in Control Termination (the “COBRA Period”), a continuation of the
 group medical insurance coverage previously provided to Tufto by ISS; and,
 during the COBRA Period, ISS will pay that portion of the premium for group
 medical insurance that it paid during Tufto’s employment.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 Post-Termination
 Obligations and Conditions. In the event of the
 termination of Tufto’s employment with ISS, the sole obligation of ISS to
 Tufto will be ISS’s obligation to make any payments it is required to make to
 Tufto as provided in this Agreement, and ISS will have no other obligation to
 Tufto or to Tufto’s beneficiary(ies) or estate.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 Notwithstanding
 the provisions of Section 6(c) and Section 6(d) of this Agreement, ISS will
 not be obligated to make any payments to Tufto under Section 6(c) or Section
 6(d) unless: (A) Tufto has signed the Release Agreement; (B) any and all
 applicable rescission periods provided by law for releases of claims shall
 have expired and Tufto shall have signed and not rescinded the release of
 claims; and (C) Tufto is in strict compliance with the terms of this
 Agreement as of the date(s) of such payments.

 

6

	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 Immediately
 upon the termination of Tufto’s employment with ISS for any reason, Tufto
 will resign all positions then held as a director, officer, manager or
 managing director of ISS and of affiliated entities of ISS.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 Withholding
 Taxes. ISS shall be entitled to deduct from all
 payments or benefits provided for under this Agreement any federal, state or
 local income and employment-related taxes required by law to be withheld with
 respect to such payments or benefits.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (g)

 	
 Compliance
 with Code Section 409A. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 The parties to
 this Agreement intend that the payments described in Section 6(c) and Section
 6(d) of this Agreement shall be excluded from deferred compensation as a
 “short-term deferral” under Treas. Reg. §1.409A-1(b)(4). The parties to this
 Agreement intend that the continuation of any health and dental benefits
 under this Agreement shall be excluded from deferred compensation pursuant to
 the medical benefits exception for separation pay plans under Treas. Reg.
 §1.409A-1(b)(9)(v)(B). 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 The parties
 to this Agreement intend that the continuation of any life and disability
 insurance benefits under this Agreement shall be excluded from deferred
 compensation as separation pay due to an involuntary separation from service
 under Treas. Reg. §1.409A-1(b)(9)(iii), and the amounts payable for any such
 continuation of life and disability insurance coverage shall not exceed two
 times the lesser of (x) Tufto’s annualized compensation based on the annual
 rate of pay for services to ISS for the calendar year prior to the calendar
 year in which the Change in Control Termination occurs (adjusted for any
 increase during the year that was expected to continue indefinitely if Tufto
 had not separated from service) or (y) the compensation limit under Section
 401(a)(17) of the Code for the year in which the Change in Control
 Termination occurs. 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)

 	
 Notwithstanding
 the foregoing, if any of the payments described in Section 6(c) and Section
 6(d) of this Agreement are subject to the requirements of Code Section 409A,
 and ISS determines that Tufto is a “specified employee” as defined in Code
 Section 409A as of Tufto’s Termination Date, such payments shall not be paid
 or commence earlier than the date that is six months after the Termination
 Date, but shall be paid or commence during the calendar year following the
 year in which the Termination Date occurs and within 30 days of the earliest
 possible date permitted under Code Section 409A. 

 

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 7.

 	
 Miscellaneous.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Notices.
 Any and all notices permitted or required to be given under this Agreement
 must be in writing. Notices will be deemed given (1) when personally received
 or when sent by facsimile transmission (to the receiving party’s facsimile
 number), (2) on the first business day after having been sent by commercial
 overnight courier with written verification of receipt, or (3) on the third
 business day after having been sent by registered or certified mail from a
 location on the United States mainland, return receipt requested, postage
 prepaid, whichever occurs first, at the address set forth below or at any new
 address, notice of which will have been given in accordance with this
 Paragraph:

 

	
  

 	
  

 	
  

 
	
  

 	
 If to ISS:

 	
 James W.
 Bracke

 
	
  

 	
  

 	
 500 Spruce
 Tree Centre

 
	
  

 	
  

 	
 1600
 University Ave. West

 
	
  

 	
  

 	
 St. Paul, MN
 55104

 
	
  

 	
  

 	
 (or other
 address as is notified in writing from time to time by ISS to Tufto by return
 receipt requested, postage prepaid post)

 
	
  

 	
  

 	
  

 
	
  

 	
 If to Tufto:

 	
 Kris B.
 Tufto

 
	
  

 	
  

 	
 2660
 Christian Court

 
	
  

 	
  

 	
 Chaska, MN
 55318

 
	
  

 	
  

 	
 (or other
 address as is notified in writing from time to time by Tufto to ISS by return
 receipt requested, postage prepaid post)

 

	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Amendments.
 Except as provided in the next sentence, this Agreement may not be changed or
 modified in whole or in part except by a writing signed by ISS and Tufto.
 Notwithstanding anything in this Agreement to the contrary, ISS and Tufto
 agree that ISS has the right to amend this Agreement without Tufto’s consent
 to the extent necessary or desirable to comply with Code Section 409A,
 provided that no such amendment may reduce the amount of any benefits payable
 to Tufto without Tufto’s consent.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Governing
 Law. This Agreement will be governed by and
 interpreted according to the laws of the State of Minnesota without regard to
 its conflicts law. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 No Waiver.
 The failure of either party to this Agreement to insist on strict compliance
 with any of the terms of this Agreement in any instance or instances will not
 be deemed to be a waiver of any term of this Agreement or of that party’s
 right to require strict compliance with the terms of this Agreement in any
 other instance.

 
	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 Severability.
 Tufto and ISS recognize that the limitations contained in this Agreement are
 reasonably and properly required for the adequate protection of the interests
 of ISS. If for any reason a court of competent jurisdiction or binding
 arbitration proceeding finds any provision of this Agreement, or the
 application of any part of this Agreement, to be unenforceable, the remaining
 provisions of this Agreement will be interpreted so as best to reasonably
 effect the intent of the parties to this Agreement. The parties to this
 Agreement further agree that the court or arbitrator shall replace any such
 invalid or unenforceable provisions with valid and enforceable provisions
 designed to achieve, to the extent possible, the business purposes and intent
 of such unenforceable provisions.

 
	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 Entire
 Agreement. With the exception of Section 5 of and Appendix A
 to the Original Agreement, this Agreement constitutes the entire understanding
 and agreement of the parties hereto with respect to the subject matter of
 this Agreement and supersedes all prior and contemporaneous agreements or
 understandings, inducements or conditions, express or implied, written or
 oral, including, without limitation, the Original Agreement (with the
 foregoing exceptions), between the parties to this Agreement with respect to
 the subject matter of this Agreement. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (g)

 	
 Term of
 Agreement. This Agreement shall commence on the
 Effective Date and shall continue in effect until the date on which Tufto’s
 employment with ISS terminates for any reason whatsoever; provided, that any
 rights and obligations accruing upon or prior to the termination or
 expiration of this Agreement shall survive to the extent necessary to enforce
 such rights and obligations.

 

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 (h)

 	
 Successors
 and Assigns. This Agreement shall inure to the
 benefit of and shall be enforceable by Tufto, his heirs and the personal
 representative(s) of his estate, and it shall be binding upon and inure to the
 benefit of ISS and its successors and assigns. ISS will require the
 transferee of any sale of all or substantially all of the business and assets
 of ISS or the survivor of any merger, consolidation or other transaction
 expressly to agree to honor this Agreement in the same manner and to the same
 extent that ISS would be required to perform this Agreement if no such event
 had taken place. The failure of ISS to obtain such agreement before the
 effective date of such event shall be a material breach of this Agreement by
 ISS within the meaning of Section 1(b)(iv)(D) of this Agreement. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (i)

 	
 Captions.
 The headings or captions set forth in this Agreement are for convenience only
 and shall not affect the meaning or interpretation of this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 (j)

 	
 Counterparts.
 This Agreement may be executed in several counterparts, each of which shall
 be deemed an original but all of which together shall constitute one and the
 same instrument.

 

          IN
WITNESS WHEREOF, Tufto and ISS have caused this Agreement to be duly executed
and delivered as of the Effective Date.

	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Image Sensing Systems, Inc.

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 By: 

 	
 /s/ James W.
 Bracke

 	
  

 	
 /s/ Kris B.
 Tufto

 	
  

 
	
  

 	
 James W.
 Bracke

 	
  

 	
 Kris B.
 Tufto

 	
  

 
	
 Its: 

 	
 Chairman

 	
  

 	
  

 	
  

 

9

APPENDIX A
TO THE EMPLOYMENT AGREEMENT BETWEEN 

IMAGE SENSING SYSTEMS, INC., AND KRIS B. TUFTO

CONFIDENTIALITY, NONCOMPETITION AND 

INVENTION ASSIGNMENT AGREEMENT

          This
CONFIDENTIALITY, NONCOMPETITION, AND INVENTION ASSIGNMENT AGREEMENT (“Agreement”)
between Image Sensing Systems, Inc. (“ISS”), and Kris B. Tufto (“Employee”) is
signed and dated on __ October, 2012. 

          As
an express condition of Employee’s employment with ISS, for his receipt of ISS
benefits, and other valuable consideration, and in exchange for other premises
and mutual promises contained in this Agreement, ISS and Employee agree as
follows:

          1.       Confidential
and Proprietary Information.

                    (a)          Employee
understands and agrees that, during the course of his employment with ISS, he
will receive proprietary, confidential, and trade secret information – all of
which has special value to and constitutes a unique asset of ISS (collectively
referred to in this Agreement as “Confidential & Proprietary Information”).
Employee agrees that he will not disclose such Confidential & Proprietary
Information during the period of his employment or after the termination of his
employment for any reason whatsoever and that he will not use or share the same
with any person, firm, or corporation without first obtaining ISS’s written
consent.

                    (b)          For
these purposes, “Confidential and Proprietary Information” includes, but is not
limited to, confidential information relating to ISS’s business, products and
services, customers, or vendors; trade secrets, data, specifications,
developments, inventions, patents, patent materials, copyrightable subject
matter and ideas, processes, know-how, designs, computer systems, and research
activity; marketing and sales strategies, marketing and product plans,
information, pricing strategies, and techniques; long and short term business
plans; existing and prospective client, vendor, and employee lists, contacts,
and information; financial and personnel information; any information and/or
applications relating to ISS’s internal information systems; and any other
information concerning the business of ISS which is not disclosed to the
general public or known in the industry, except for disclosure necessary in the
course of Employee’s duties or with the express written consent of ISS. All
Confidential and Proprietary Information, including all copies, notes
regarding, correspondence and/or electronic communications regarding, and
replications of such Confidential and Proprietary Information will remain the
sole property of ISS and must be returned to ISS immediately upon termination
of Employee’s employment.

                    (c)          Employee
acknowledges that ISS’s Confidential and Proprietary Information constitutes a
unique and valuable asset of ISS and represents a substantial investment of
time and expense by ISS, and that any disclosure or use of such knowledge or
information other than for the sole benefit of ISS would be wrongful and would
cause irreparable harm to ISS. 

                    (d)          The
foregoing obligations of confidentiality do not apply to any knowledge or
information that is now published or which subsequently becomes generally
publicly known in the form in which it was obtained from ISS, other than as a
direct or indirect result of the breach of this Agreement by Employee.

A-1

          2.       Return
of Company Property. Upon termination of employment with ISS for whatever
reason, or at any other time at the request of ISS, Employee will deliver to a
designated Company representative all records, documents, hardware, software,
and all other Company property and all copies of such Company property in
Employee’s possession. Employee acknowledges and agrees that all such materials
are the sole property of ISS and that he will certify in writing to ISS at the
time of delivery that he has complied with this obligation.

          3.       Noncompetition
Covenant. ISS and Employee agree that, due to Employee’s position with ISS,
Employee will have access to ISS’s Confidential and Proprietary Information and
has developed and will continue to develop certain goodwill and relationships
on behalf of ISS. Employee acknowledges that ISS will only release its Confidential
and Proprietary Information, and will only permit Employee to continue to
generate this goodwill and these relationships, upon the receipt of assurances
that Employee will not use the information, goodwill, or relationships to ISS’s
disadvantage and, accordingly, agrees to the following provisions:

                    (a)          Agreement
Not to Compete. During the term of his employment with ISS, and for a
period of twelve
(12) months after the termination of such employment for any reason,
Employee will not, directly or indirectly, serve as an employee, agent,
consultant, director, stockholder or owner, or render services to any
Conflicting Organization. Employee also will not direct any other individual or
business enterprise to engage in such competition with ISS. For the purposes of
this Agreement, “Conflicting Organization” means companies and other
organizations engaged in or which have plans to engage in software-based
computer enabled detection products and solutions for the intelligent transportation
industry and adjacent security and law enforcement markets.

                    (b)          Nonsolicitation
of Customers or Suppliers. During the term of his employment with ISS, and
for a period of twelve (12) months after the termination of such employment
for any reason, Employee agrees that he will not, directly or indirectly,
divert, solicit, approach, contact, call upon, accept business from, or sell or
render services to any client/customer or prospective client/customer of ISS
who was solicited or serviced directly by Employee at any time during the
twelve (12) months prior to his termination from employment, or where he
supervised, directly or indirectly, in whole or in part, the solicitation or
service activities related to such clients or prospects during the same
twelve-month period. Employee also will not, directly or indirectly, aid or
assist any other person, firm, or corporation in doing what he himself cannot
do under the terms of this Agreement. Employee will not in any way interfere or
attempt to interfere with ISS’s relationships with any of its actual or
potential customers, suppliers, or subcontractors.

                    (c)          Nonsolicitation
of Employees. Employee recognizes that ISS’s work force constitutes an
important and vital aspect of its business. During the term of his employment
with ISS, and for a period of twelve (12) months after the termination of
such employment for any reason, Employee will not, directly or indirectly,
hire, solicit, employ, or attempt to employ, any employee or director of ISS,
or otherwise directly or indirectly interfere with or disrupt relationships,
contractual or otherwise, between ISS and any of its employees, directors, or
consultants.

                    (d)          Acknowledgment.
Employee agrees that the restrictions and agreements contained in this
Agreement (and particularly in this Paragraph 3) are reasonable and necessary
to protect the legitimate interests of ISS, and that any violation of this
Agreement will cause substantial and irreparable harm to ISS that would not be
quantifiable and for which no adequate remedy would exist at law. Employee
further acknowledges that he has had the opportunity to request that legal
counsel review this Agreement and, having exhausted such right, agrees to the
terms herein without reservation. Accordingly, Employee authorizes the issuance
of injunctive relief by any court of appropriate jurisdiction, without the
requirement of posting bond, for any violation of this Agreement, and agrees that
ISS shall be entitled to the recovery of reasonable attorneys’ fees incurred in
the enforcement of this Agreement.

A-2

          4.       Assignment
of Inventions. Employee agrees to promptly disclose to ISS inventions,
ideas, processes, writings, designs, developments and improvements, whether or
not protectable under the applicable patent, trademark or copyright statutes,
which Employee makes, conceives, reduces to practice, or learns during his/her
employment by ISS, either alone or jointly with others, relating to any
business in which ISS is or may be concerned (“Inventions”). Such disclosures
will be made by Employee to ISS in a written report, setting forth in detail
the structures, procedures and methodology employed and the results achieved.

                    (a)          To
the extent that any Invention qualifies as “work made for hire” as defined in
17 U.S.C. § 101 (1976), as amended, such Invention will be the exclusive
property of ISS. Moreover, Employee agrees to treat every work or idea created
or acquired by or on behalf of Employee for ISS as a “work made for hire.” It
is the intent of both Employee and ISS that ISS have unrestricted ownership in
all of such works and to any derivative works thereof, without further
compensation of any kind to Employee or to those with whom Employee may work. 

                    (b)          Consistent
with and to the extent permitted by law, Employee hereby assigns and agrees to
assign to ISS all rights in and to these Inventions, including, but not limited
to, applications for United States and foreign patents and resulting patents
and to further cooperate with ISS in maintaining, obtaining, and protecting
such proprietary rights. Employee shall execute all applications, assignments
and other papers necessary to enable ISS to obtain full protection and title to
such matter and inventions, and Employee hereby waives any claim of moral right
that Employee may have in or in connection with any such work.

                    (c)          Employee
further acknowledges that he received notice from ISS that his obligation to
assign rights in and to any Inventions does not apply to an Invention for which
no equipment, supplies, facility or trade secret information of ISS was used
and which was developed entirely on Employee’s own time, and (1) which does not
relate (A) directly to the business of ISS or (B) to ISS’s actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Employee for ISS.

                    (d)          Employee
has attached a complete list of all existing patentable or non-patentable
inventions, original works of authorship, derivative works, trade secrets,
trademarks, copyrights, service marks, discoveries, patents, technology, algorithms,
computer software, application programming interfaces, protocols, formulas,
compositions, ideas, designs, processes, techniques, know-how, data, and all
improvements thereto to which Employee claims ownership as of the date of this
Agreement and which Employee desires to clarify are not subject to this
Agreement (“Excluded Inventions”). If no such list is attached to this
Agreement, Employee represents that he has no such Excluded Inventions at the
time of signing this Agreement.

                    (e)          Employee
further agrees that prior to separation from employment with ISS for any
reason, he will disclose to ISS, in a written report, all Inventions, the
rights to which he has agreed to assign to ISS under (a) and (b) above, and
which he has not previously disclosed.

                    (f)          In
the event of any dispute concerning whether an Invention made or conceived by
Employee is the property of ISS, such Invention will be presumed to be the
property of ISS, and Employee will bear the burden of establishing otherwise in
any arbitration, litigation, or similar proceeding.

A-3

          5.       Injunctive
Relief. Because the Confidential and Proprietary Information described
above and the products derived therefrom are unique, peculiar and of great
value to ISS, ISS shall be entitled to injunctive relief to restrain Employee
from violating or threatening to violate any provisions contained herein. The
parties also agree that, because of the unique nature of their relationship and
the information and products to which Employee has been exposed through this
relationship, ISS shall be entitled to an injunction to be issued by any Court
of competent jurisdiction enjoining and restraining Employee from committing
any violation of this Agreement, and Employee hereby consents to the issuance
of such injunction. Proceedings may be initiated against Employee or Employee’s
legal representatives or assigns. ISS shall be entitled to its reasonable costs
and attorneys’ fees incurred in enforcing this provision.

          6.       Miscellaneous.

                    (a)          At-will
Employment. Nothing in this Agreement creates any rights of employment.
Employee is, and remains, an “at-will” employee. 

                    (b)          Severability.
It is further agreed and understood by the parties that if any part, term or
provision of this Agreement should be unenforceable, invalid, or illegal under
any applicable law or rule, the offending term or provision will be struck and
the remaining provisions of the Agreement will not be affected or impaired
thereby. 

                    (c)          Assignability.
The terms, conditions, and covenants of this Agreement shall be assignable to
the successors and assigns of ISS. 

                    (d)          Waiver.
Failure of ISS at any time to enforce any provision of this Agreement shall not
be interpreted as a waiver of any provision of ISS’s rights under this
Agreement.

                    (e)          Entire
Agreement. This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes any
prior understandings, agreements or representations, written or oral, relating
to such subject matter. 

                    (f)          Modification,
Amendment, Waiver or Termination. No provision of this Agreement may be
modified, amended, waived or terminated except by an instrument in writing
signed by the parties to this Agreement. No delay or waiver, express or
implied, by ISS of any right or any breach by Employee shall constitute a
waiver of any other right or breach by Employee.

                    (g)          Governing
Law. This Agreement will be governed by and interpreted according to the
substantive laws of the State of Minnesota without regard to such state’s
conflicts law. 

          IN
WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date memorialized in the first paragraph.

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 Image
 Sensing Systems, Inc.

 
	
  

 	
  

 	
  

 	
  

 
	
 By:

 	
  

 	
  

 	
 By:

 	
  

 
	
  

 	
  

 	
  

 	
 Its:

 	
  

 

A-4

APPENDIX B
TO THE AMENDED AND RESTATED EMPLOYMENT AGREEMENT

BETWEEN 

IMAGE SENSING SYSTEMS, INC. AND KRIS B. TUFTO

          WHEREAS,
the parties entered into an Amended and Restated Employment Agreement which
became effective on ______________, 2014 (the “Employment Agreement”); and

          WHEREAS,
in order to receive certain severance payments and related benefits under
Section 6 of the Employment Agreement, the parties agreed that Tufto would be
required to sign a release of claims at the time of the event contemplated by
Section 6; and

          WHEREAS,
the parties have agreed to a form of release substantially similar to that set
forth in this Appendix B; and

          WHEREAS,
under the terms of this Appendix B, Tufto agrees to release all claims –
whether known or unknown – that he may have against ISS, or any of its
respective officers, directors, members, managers, employees or agents, parents
or affiliates, through the date of his signature on this Appendix B; 

          NOW,
THEREFORE, it is mutually agreed by and between the
parties for good and valuable consideration as follows:

          A          Tufto
affirms that he is signing this Appendix B on or after the termination
of his employment, as described in Section 6 of the Employment Agreement.

          B.          Tufto,
for good and valuable consideration, does hereby fully and completely release
and waive any and all claims, complaints, causes of action, demands, suits, and
damages, of any kind or character, which he has or may have against ISS, or any
of its respective officers, directors, members, managers, employees or agents,
parents or affiliates arising out of any acts, omissions, conduct, decisions,
behavior, or events occurring up through the date of his signature on this Appendix
B.

          Tufto
understands that he is giving up any and all claims (whether now known or
unknown) that he may have including (without limitation) claims relating to his
employment with ISS, and the cessation of his employment with ISS, including,
but not limited to, any claims arising under or based upon the Minnesota Human
Rights Act; Title VII of the Civil Rights Act of 1964, as amended; the
Americans With Disabilities Act (“ADA”); the Family & Medical Leave Act
(“FMLA”); the Age Discrimination in Employment Act (“ADEA”), as amended by the
Older Workers Benefit Protection Act; or any other federal, state, or local
statute, ordinance, or law. Tufto also understands that he is giving up all
other claims, including those grounded in contract or tort theories, including
but not limited to breach of contract; tortious interference with contractual
relations; promissory estoppel; breach of manuals or other policies; assault;
battery; fraud; false imprisonment; invasion of privacy; intentional or
negligent misrepresentation; defamation, including libel, slander, defamation
and self-publication defamation; intentional or negligent infliction of
emotional distress; sexual harassment; or any other theory.

          Tufto
further understands that he is releasing, and does hereby release, any claims
for damages, by charge or otherwise, whether brought by him or on his behalf by
any other party, governmental or otherwise, and agrees not to institute any
claims for damages via administrative or legal proceedings
against ISS, or any of its respective officers, directors, members, managers,
employees or agents, parents or affiliates. Tufto understands that, while he
retains his right to bring an administrative charge with the Equal Employment
Opportunity Commission or the Minnesota Department of Human Rights, he waives
and releases any and all rights to money damages or other legal relief awarded
by any governmental agency related to any charge or claim. 

B-1

          C.          Tufto
understands that he has the right to seek legal counsel before entering into
this Appendix B and that he has 21 days from the date of his termination
to execute this Appendix B.

          D.          Tufto
understands that he may revoke this release (Appendix B) (1) with
respect to potential age-related claims within the seven-day period following
the date he signs it and (2) with respect to potential claims under the
Minnesota Human Rights Act within the fifteen-day period following the date he
signs it. Tufto also understands that, if he does revoke this release (Appendix
B), he gives up any right to the consideration provided to him the benefits
described in Paragraph 6 of the Employment Agreement.

          E.          Tufto
acknowledges that he has read this Appendix B, that he understands it,
and that he enters into Appendix B voluntarily.

	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Dated:

 	
  

 	
  

 	
 By:

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
 Kris B. Tufto

 

B-2Exhibit 10.2

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

          This
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, including attached Appendix B
(collectively, the “Agreement”), is made by and between Image Sensing Systems,
Inc., and its subsidiaries and divisions (collectively, “ISS”), and Dale E.
Parker (“Parker”) as of the 22nd day of April, 2014 (the “Effective
Date”).

RECITALS:

          A.       ISS
and Parker entered into that certain Employment Agreement effective on or about
June 25, 2013 (the “Original Agreement”) under which Parker has served and
continues to serve as the Chief Operating Officer, Chief Financial Officer and
Treasurer of ISS, and ISS wants Parker, and Parker wishes, to continue to serve
in that capacity.

          B.       ISS
and Parker have negotiated the terms of Parker’s employment as Chief Operating
Officer, Chief Financial Officer and Treasurer of ISS to include change in
control provisions, and they want to amend and restate the Original Agreement
to include such provisions. 

          C.       ISS
and Parker mutually agree to the terms set forth in this Agreement.

          NOW
THEREFORE, in consideration of the convents and conditions contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ISS and Parker agree as follows:

AGREEMENT:

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 1.

 	
 Employment;
 Definitions.
 

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Employment. Parker is an at-will employee, and his
 employment may be terminated by either Parker or ISS at any time, with or
 without cause. Parker has and will continue to serve as ISS’s Chief Operating
 Officer, Chief Financial Officer and Treasurer. 

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Definitions. For purposes of this Agreement, the
 following terms shall have the following meanings:

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 “Change in
 Control” means any one or more of the following events occurring after the
 Effective Date:

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (A)

 	
 the purchase
 or other acquisition by any one person, or more than one person acting as a
 group, of capital stock of ISS that, together with ISS’s capital stock
 beneficially owned by such person or group (as the term “beneficial
 ownership” is defined in Rule 13d-3 under the Securities Exchange Act of 1934
 (the “Exchange Act”)), constitutes more than 50% of the total combined value
 or total combined voting power of all classes of capital stock issued by ISS;

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (B)

 	
 a merger or
 consolidation to which ISS is a party if the individuals and entities who
 were shareholders of ISS immediately before the effective date of such merger
 or consolidation have, immediately following the effective date of such
 merger or consolidation, beneficial ownership (as defined in Rule 13d-3 under
 the Exchange Act) of less than 50% of the total combined voting power of all
 classes of securities issued by the surviving entity for the election of
 directors of the surviving corporation;

 

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (C)

 	
 the purchase
 or other acquisition by any one person, or more than one person acting as a
 group, of all or substantially all of the assets of ISS during the 12-month
 period ending on the date of the most recent purchase or other acquisition of
 such assets by such person or persons;

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (D)

 	
 a change in
 the composition of ISS’s Board of Directors at any time during any
 consecutive 12-month period such that the “Incumbent Directors” (as the term
 “Incumbent Directors is hereinafter defined) cease for any reason to
 constitute greater than 50% of the members of ISS’s Board of Directors. For
 purposes of this event, the term “Incumbent Directors” means those members of
 ISS’s Board of Directors who either:

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
 (1)          were
 members of ISS’s Board of Directors on the Effective Date; or

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
 (2)          were
 elected or appointed by, or on the nomination or recommendation of, at least
 a majority of the members of the then-existing Board of Directors (either by
 specific vote or by approval of ISS’s proxy statement in which such
 individual is named as a nominee for director without objection to such
 nomination);

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (E)

 	
 ISS’s
 shareholders approve any plan or proposal for the liquidation or dissolution
 of ISS; or

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (F)

 	
 any other
 change in control of ISS of a nature that would be required to be reported
 pursuant to Section 13 or 15(d) of the Exchange Act, whether or not ISS is
 then subject to such reporting requirements.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 In all
 cases, the determination of whether a Change in Control has occurred shall be
 made in accordance with Section 409A of the Code. 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 “Change in
 Control Termination” means any of the following events occurring upon or
 within 12 months after a Change in Control:

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (A)

 	
 the
 termination of Parker’s employment by ISS for any reason other than “With
 Cause” (as that term is hereinafter defined); or

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (B)

 	
 the
 termination of employment with ISS by Parker for “Good Reason,” (as that term
 is hereinafter defined), which termination shall be accomplished by, and be
 effective upon, Parker giving written notice to ISS of his decision to
 terminate within 10 days after the expiration of the 30-day cure period
 provided to ISS as described in the first paragraph of Section 1(b)(iv). 

 

2

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 For purposes
 of Section 6(d), with respect to the timing of payments thereunder, the term
 “Change in Control Termination” means Parker’s Termination Date.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)

 	
 “Code” means
 the Internal Revenue Code of 1986, as amended, and the regulations, notices
 and other guidance of general applicability issued thereunder.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iv)

 	
 “Fair Market
 Value” means the per share closing price of ISS’s common stock or any other
 securities into which ISS’s common stock has been converted that are subject
 to Options held by Parker as quoted on the NASDAQ Stock Market or any other
 exchange on which such common stock or other securities are principally
 traded or, if such common stock or securities are not traded on any exchange,
 the fair market value of such common stock or securities as determined in
 good faith by the Board of Directors of ISS or its successor.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (v)

 	
 “Good
 Reason” means Parker has provided written notice to ISS within 90 days
 following the occurrence of any of the following events, provided the event
 results in a negative change to Parker, which notice describes the event in
 reasonable detail and the facts and circumstances claimed by Parker to
 constitute Good Reason, and ISS has not cured the event within 30 days after
 receiving such notice from Parker:

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (A)

 	
 the
 assignment of Parker without Parker’s consent to a position with material
 responsibilities or duties of a lesser status or degree than the position of
 Chief Operating Officer, Chief Financial Officer and Treasurer of ISS;

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (B)

 	
 the
 relocation of Parker’s principal office for ISS business, without Parker’s
 consent, to a location more than 50 miles outside Parker’s work location as of
 the date of this Agreement;

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (C)

 	
 a material
 reduction, in the aggregate, in base salary, variable pay opportunities or
 the employee benefits in which Parker is entitled to participate irrespective
 of any standard waiting periods with respect to the same, unless such
 material reduction is generally applicable to all employees of ISS with a
 similar ranking to Parker; or

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (D)

 	
 a material
 breach or a material adverse modification of this Agreement by ISS without
 Parker’s consent.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 Termination
 for “Good Reason” shall not include Parker’s death or a termination for any
 reason other than one of the events described in clauses (A) through (D) of
 this Section 1(b)(iv).

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (vi)

 	
 “Termination
 Date” means the date upon which Parker’s “separation from service” with ISS
 within the meaning of Section 409A(a)(2)(A)(i) of the Code (with “ISS” for
 purposes of this paragraph to include any business entity that is treated as
 a single employer with ISS under the rules of Section 414(b) and (c) of the
 Code).

 

3

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (vii)

 	
 “With Cause”
 means the occurrence of any of the following events:

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (A)

 	
 the
 conviction of Parker of, or a plea of “guilty” or “no contest” by Parker to,
 a felony under the laws of the United States or any state thereof or the
 conviction of Parker of, or a plea of “guilty” or “no contest” by Parker to,
 any act involving moral turpitude;

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (B)

 	
 Parker’s
 breach of fiduciary duty involving personal profit;

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (C)

 	
 Parker’s
 willful and material misconduct in the performance of duties assigned to
 Parker as the Chief Operating Officer, Chief Financial Officer and Treasurer
 of ISS;

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (D)

 	
 Parker’s
 consistent failure to perform the reasonable stated duties assigned to Parker
 under this Agreement; or

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 (E)

 	
 Illegal or
 unethical business practices by Parker, including but not limited to the
 commission of fraud, misappropriation or embezzlement in connection with
 ISS’s business.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
           2.       Duties. Parker will devote his
 full professional time, attention and efforts to the business and affairs of
 ISS during his employment with ISS, and Parker agrees that, to the best of
 his ability and experience, and at all times, he will conscientiously perform
 the duties and obligations assigned to him.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
           3.       Compensation.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Salary. Parker’s base salary will be $230,000 per
 year for the year ending December 31, 2014, less all required
 withholdings and deductions, payable in accordance with ISS’s standard
 payroll procedures in effect from time to time. Parker’s performance will be evaluated by ISS’s Board of
 Directors from time to time in its discretion but no less often than
 annually. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Bonuses. Parker’s bonus plan will be determined by
 ISS’s Board of Directors from time to time in its discretion but no less
 often than annually.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Employee
 Benefits.
 Parker will be entitled to insurance and other benefits in accordance
 with ISS’s standard and executive benefits in effect from time to time. These
 benefits include several elections that must be made by Parker. Planbooks,
 Summary Plan Descriptions, and Plan Legal Documents containing formal
 descriptions of all available benefits have been or will be provided to
 Parker. ISS is entitled to change, modify, or discontinue such benefits at
 its sole discretion.

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Vacation. Parker is entitled to up to four weeks of
 vacation each year in accordance with ISS’s vacation policy in effect from
 time to time.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
           4.       Reimbursement
 of Reasonable Travel and Business Expenses. ISS will, in accordance with its policies in effect from time
 to time, reimburse Parker for all reasonable business expenses incurred by
 Parker in connection with the performance of his duties under this Agreement,
 upon submission of the necessary documentation required pursuant to ISS’s
 standard policies and record keeping procedures. Parker also agrees that he
 will adhere to ISS’s current travel policy.

 
	
  

 
	
           5.       Confidentiality,
 Noncompetition and Invention Assignment.
 Parker has signed Appendix A to the Original Agreement,
 and Parker expressly reaffirms the terms of Section 5 of and Appendix A
 to the Original Agreement; the form of Appendix A to the Original
 Agreement is attached as Appendix A to this Agreement for reference. 

 

4

	
  

 	
  

 	
  

 	
  

 	
  

 
	
           6.       Severance
 upon Termination of Employment.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Voluntary
 Termination.
 Should Parker terminate his employment for any reason other than for
 Good Reason as provided in Section 1(b)(ii)(B) and Section 1(b)(iv) of this
 Agreement, (i) ISS shall pay Parker all earned and unpaid amounts due to him
 for salary through the termination date and a pro-rata portion of any
 incentive pay to which, at ISS’s discretion, Parker would have been paid had
 he remained in ISS’s employ; (ii) Parker shall have 90 days after the date of
 the termination of his employment (or such shorter period as is provided in
 the Image Sensing Systems, Inc. 2005 Stock Incentive Plan, as amended (the
 “Plan”), or any successor or replacement plan of a similar nature, or an
 agreement governing the Option) to exercise all Options owned by Parker that
 are exercisable as of such termination date; and (iii) any other Options,
 Restricted Stock and Restricted Stock Units owned by Parker shall automatically
 terminate. Except as expressly
 provided herein, to the extent that there is any conflict between the
 provisions of this Section 6(a) and the provisions of the Plan or any
 agreement governing Options, Restricted Stock and Restricted Stock Units owned
 by Parker, the provisions of this Section 6(a) shall govern. For purposes of this Agreement, the terms
 “Option,” “Restricted Stock” and “Restricted Stock Units” shall have the
 meaning set forth in the Plan or any successor or replacement plan of a similar
 nature.

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Termination
 by ISS “With Cause.” Should ISS terminate Parker’s employment With Cause, Parker
 shall not be entitled to any severance, and all of the Options, Restricted
 Stock and Restricted Stock Units owned by Parker shall automatically
 terminate; provided, however, that Parker shall have thirty (30) days to cure
 any alleged breach, failure, or misconduct under Section 1(b)(vi)(D) of this
 Agreement, if such alleged breach, failure or misconduct is curable, after
 ISS provides Parker written notice of the actions or omissions constituting
 such breach, failure, or misconduct.
 Except as expressly provided herein, to the extent that there is any
 conflict between the provisions of this Section 6(b) and the provisions of
 the Plan or any agreement governing Options, Restricted Stock and Restricted
 Stock Units owned by Parker, the provisions of this Section 6(b) shall
 govern.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Termination
 by ISS “Without Cause.” Should ISS terminate Parker’s employment for any reason other than
 (1) With Cause, (2) a Change in Control Termination, or (3) because of
 Parker’s inability to perform his duties because of death or disability, upon
 entry into a release agreement provided by ISS in a form substantially
 similar to that set forth in Appendix B to this Agreement (the
 “Release Agreement”), (i) Parker shall be entitled to 12 months of salary
 continuation, without eligibility for bonus; and (ii) he shall have 90 days
 after the date of the termination of his employment (or such shorter period
 as is provided in the Plan, or any successor or replacement plan of a similar
 nature, or an agreement governing the Option) to exercise all Options owned
 by Parker that are exercisable as of such termination date. Any other Options, Restricted Stock and
 Restricted Stock Units owned by Parker shall automatically terminate upon
 termination of Parker’s employment under this Section 6(c). ISS and Parker have the ability, however,
 at any time, to terminate this Agreement by mutual written agreement, with or
 without the severance benefit. Except
 as expressly provided herein, to the extent that there is any conflict
 between the provisions of this Section 6(c) and the provisions of the Plan or
 any agreement governing Options, Restricted Stock and Restricted Stock Units owned
 by Parker, the provisions of this Section 6(c) shall govern.

 

5

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Change in
 Control Termination. Subject to the conditions
 contained in this Agreement, upon a Change in Control Termination, Parker
 shall be entitled to the following compensation and benefits:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 Upon Parker’s
 entry into the Release Agreement, ISS shall pay to Parker a severance payment
 equal to (A) 1.5 times the amount of Parker’s annual salary from ISS (or any
 predecessor entity or related entity) in effect as of the date of the Change
 in Control Termination plus (B) the total annual incentive pay to which
 Parker is entitled from ISS (or any predecessor entity or related entity) as
 of the date of the Change in Control Termination; for purposes of this
 paragraph, the terms “predecessor entity” and “related entity” shall have the
 meanings set forth in Section 280G of the Code.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 Any and all
 outstanding Options owned by Parker with a per share exercise price that is
 less than the Fair Market Value on the trading day before the date of the
 Change in Control Termination shall become immediately vested and exercisable
 as of the date of the Change in Control Termination, and Parker shall have 90
 days after the date of the Change in Control Termination (or such shorter
 period as is provided in the Plan, or any successor or replacement plan of a
 similar nature, or an agreement governing the Option) to exercise all of such
 Options; any other Options owned by Parker shall automatically terminate; and
 the risks of forfeiture on any outstanding Restricted Stock or Restricted
 Stock Units owned by Parker shall immediately lapse. Except as expressly
 provided herein, to the extent that there is any conflict between the
 provisions of this Section 6(d)(ii) and the provisions of the Plan or any
 agreement governing Options, Restricted Stock and Restricted Stock Units
 owned by Parker, the provisions of this Section 6(d)(ii) shall govern.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)

 	
 ISS,
 pursuant to federal and state law, will provide, for a period beginning on
 the date of Parker’s Change in Control Termination and ending on the earlier
 of the date that Parker obtains new employment or two years after such date of
 the Change in Control Termination (the “COBRA Period”), a continuation of the
 group medical insurance coverage previously provided to Parker by ISS; and,
 during the COBRA Period, ISS will pay that portion of the premium for group
 medical insurance that it paid during Parker’s employment.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 Post-Termination
 Obligations and Conditions. In the event of the
 termination of Parker’s employment with ISS, the sole obligation of ISS to
 Parker will be ISS’s obligation to make any payments it is required to make to
 Parker as provided in this Agreement, and ISS will have no other obligation to
 Parker or to Parker’s beneficiary(ies) or estate.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 Notwithstanding
 the provisions of Section 6(c) and Section 6(d) of this Agreement, ISS will
 not be obligated to make any payments to Parker under Section 6(c) or Section
 6(d) unless: (A) Parker has signed the Release Agreement; (B) any and all
 applicable rescission periods provided by law for releases of claims shall
 have expired and Parker shall have signed and not rescinded the release of
 claims; and (C) Parker is in strict compliance with the terms of this
 Agreement as of the date(s) of such payments.

 

6

	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 Immediately
 upon the termination of Parker’s employment with ISS for any reason, Parker
 will resign all positions then held as a director, officer, manager or
 managing director of ISS and of affiliated entities of ISS.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 Withholding
 Taxes. ISS shall be entitled to deduct from all
 payments or benefits provided for under this Agreement any federal, state or
 local income and employment-related taxes required by law to be withheld with
 respect to such payments or benefits.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (g)

 	
 Compliance
 with Code Section 409A. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 The parties to
 this Agreement intend that the payments described in Section 6(c) and Section
 6(d) of this Agreement shall be excluded from deferred compensation as a
 “short-term deferral” under Treas. Reg. §1.409A-1(b)(4). The parties to this
 Agreement intend that the continuation of any health and dental benefits
 under this Agreement shall be excluded from deferred compensation pursuant to
 the medical benefits exception for separation pay plans under Treas. Reg.
 §1.409A-1(b)(9)(v)(B). 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 The parties
 to this Agreement intend that the continuation of any life and disability
 insurance benefits under this Agreement shall be excluded from deferred
 compensation as separation pay due to an involuntary separation from service
 under Treas. Reg. §1.409A-1(b)(9)(iii), and the amounts payable for any such
 continuation of life and disability insurance coverage shall not exceed two
 times the lesser of (x) Parker’s annualized compensation based on the annual
 rate of pay for services to ISS for the calendar year prior to the calendar
 year in which the Change in Control Termination occurs (adjusted for any
 increase during the year that was expected to continue indefinitely if Parker
 had not separated from service) or (y) the compensation limit under Section
 401(a)(17) of the Code for the year in which the Change in Control
 Termination occurs. 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)

 	
 Notwithstanding
 the foregoing, if any of the payments described in Section 6(c) and Section
 6(d) of this Agreement are subject to the requirements of Code Section 409A,
 and ISS determines that Parker is a “specified employee” as defined in Code
 Section 409A as of Parker’s Termination Date, such payments shall not be paid
 or commence earlier than the date that is six months after the Termination
 Date, but shall be paid or commence during the calendar year following the
 year in which the Termination Date occurs and within 30 days of the earliest
 possible date permitted under Code Section 409A. 

 

7

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 7.

 	
 Miscellaneous.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 Notices.
 Any and all notices permitted or required to be given under this Agreement
 must be in writing. Notices will be deemed given (1) when personally received
 or when sent by facsimile transmission (to the receiving party’s facsimile
 number), (2) on the first business day after having been sent by commercial
 overnight courier with written verification of receipt, or (3) on the third
 business day after having been sent by registered or certified mail from a
 location on the United States mainland, return receipt requested, postage
 prepaid, whichever occurs first, at the address set forth below or at any new
 address, notice of which will have been given in accordance with this
 Paragraph:

 

	
  

 	
  

 	
  

 
	
  

 	
 If to ISS:

 	
 James W. Bracke

 
	
  

 	
  

 	
 500 Spruce Tree Centre

 
	
  

 	
  

 	
 1600 University Ave. West

 
	
  

 	
  

 	
 St. Paul, MN 55104

 
	
  

 	
  

 	
 (or other
 address as is notified in writing from time to time by ISS to Parker by return
 receipt requested, postage prepaid post)

 
	
  

 	
  

 	
  

 
	
  

 	
 If to Parker:

 	
 Dale E. Parker

 
	
  

 	
  

 	
 1610 Islamorada Blvd. No. 61B

 
	
  

 	
  

 	
 Punta Gorda, Florida  33955

 
	
  

 	
  

 	
 (or other address as is notified in writing from time to time by Parker to ISS by return receipt requested, postage prepaid post)

 

	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Amendments.
 Except as provided in the next sentence, this Agreement may not be changed or
 modified in whole or in part except by a writing signed by ISS and Parker.
 Notwithstanding anything in this Agreement to the contrary, ISS and Parker
 agree that ISS has the right to amend this Agreement without Parker’s consent
 to the extent necessary or desirable to comply with Code Section 409A,
 provided that no such amendment may reduce the amount of any benefits payable
 to Parker without Parker’s consent.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Governing
 Law. This Agreement will be governed by and
 interpreted according to the laws of the State of Minnesota without regard to
 its conflicts law. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 No Waiver.
 The failure of either party to this Agreement to insist on strict compliance
 with any of the terms of this Agreement in any instance or instances will not
 be deemed to be a waiver of any term of this Agreement or of that party’s
 right to require strict compliance with the terms of this Agreement in any
 other instance.

 
	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 Severability.
 Parker and ISS recognize that the limitations contained in this Agreement are
 reasonably and properly required for the adequate protection of the interests
 of ISS. If for any reason a court of competent jurisdiction or binding
 arbitration proceeding finds any provision of this Agreement, or the
 application of any part of this Agreement, to be unenforceable, the remaining
 provisions of this Agreement will be interpreted so as best to reasonably
 effect the intent of the parties to this Agreement. The parties to this
 Agreement further agree that the court or arbitrator shall replace any such
 invalid or unenforceable provisions with valid and enforceable provisions
 designed to achieve, to the extent possible, the business purposes and intent
 of such unenforceable provisions.

 
	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 Entire
 Agreement. With the exception of Section 5 of and Appendix A
 to the Original Agreement, this Agreement constitutes the entire understanding
 and agreement of the parties hereto with respect to the subject matter of
 this Agreement and supersedes all prior and contemporaneous agreements or
 understandings, inducements or conditions, express or implied, written or
 oral, including, without limitation, the Original Agreement (with the
 foregoing exceptions), between the parties to this Agreement with respect to
 the subject matter of this Agreement. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (g)

 	
 Term of
 Agreement. This Agreement shall commence on the
 Effective Date and shall continue in effect until the date on which Parker’s
 employment with ISS terminates for any reason whatsoever; provided, that any
 rights and obligations accruing upon or prior to the termination or
 expiration of this Agreement shall survive to the extent necessary to enforce
 such rights and obligations.

 

8

	
  

 	
  

 	
  

 
	
  

 	
 (h)

 	
 Successors
 and Assigns. This Agreement shall inure to the
 benefit of and shall be enforceable by Parker, his heirs and the personal
 representative(s) of his estate, and it shall be binding upon and inure to the
 benefit of ISS and its successors and assigns. ISS will require the
 transferee of any sale of all or substantially all of the business and assets
 of ISS or the survivor of any merger, consolidation or other transaction
 expressly to agree to honor this Agreement in the same manner and to the same
 extent that ISS would be required to perform this Agreement if no such event
 had taken place. The failure of ISS to obtain such agreement before the
 effective date of such event shall be a material breach of this Agreement by
 ISS within the meaning of Section 1(b)(iv)(D) of this Agreement. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (i)

 	
 Captions.
 The headings or captions set forth in this Agreement are for convenience only
 and shall not affect the meaning or interpretation of this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 (j)

 	
 Counterparts.
 This Agreement may be executed in several counterparts, each of which shall
 be deemed an original but all of which together shall constitute one and the
 same instrument.

 

          IN
WITNESS WHEREOF, Parker and ISS have caused this Agreement to be duly executed
and delivered as of the Effective Date.

	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Image Sensing Systems, Inc.

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 By: 

 	
 /s/ James W. Bracke

 	
  

 	
 /s/ Dale E. Parker

 	
  

 
	
  

 	
 James W. Bracke

 	
  

 	
 Dale E. Parker

 	
  

 
	
 Its: 

 	
 Chairman

 	
  

 	
  

 	
  

 

9

APPENDIX A
TO THE EMPLOYMENT AGREEMENT BETWEEN 

IMAGE SENSING SYSTEMS, INC., AND DALE E PARKER

CONFIDENTIALITY, NONCOMPETITION AND 

INVENTION ASSIGNMENT AGREEMENT

          This
CONFIDENTIALITY, NONCOMPETITION, AND INVENTION ASSIGNMENT AGREEMENT (“Agreement”)
between Image Sensing Systems, Inc. (“ISS”), and Dale E. Parker (“Employee”) is
signed and dated AS OF June 25, 2013. 

          As
an express condition of Employee’s employment with ISS, for his receipt of ISS
benefits, and other valuable consideration, and in exchange for other premises
and mutual promises contained in this Agreement, ISS and Employee agree as
follows:

       1.          Confidential
and Proprietary Information.

                    (a)          Employee
understands and agrees that, during the course of his employment with ISS, he
will receive proprietary, confidential, and trade secret information – all of
which has special value to and constitutes a unique asset of ISS (collectively
referred to in this Agreement as “Confidential & Proprietary Information”).
Employee agrees that he will not disclose such Confidential & Proprietary
Information during the period of his employment or after the termination of his
employment for any reason whatsoever and that he will not use or share the same
with any person, firm, or corporation without first obtaining ISS’s written
consent.

                    (b)          For
these purposes, “Confidential and Proprietary Information” includes, but is not
limited to, confidential information relating to ISS’s business, products and
services, customers, or vendors; trade secrets, data, specifications,
developments, inventions, patents, patent materials, copyrightable subject
matter and ideas, processes, know-how, designs, computer systems, and research
activity; marketing and sales strategies, marketing and product plans,
information, pricing strategies, and techniques; long and short term business
plans; existing and prospective client, vendor, and employee lists, contacts,
and information; financial and personnel information; any information and/or
applications relating to ISS’s internal information systems; and any other
information concerning the business of ISS which is not disclosed to the
general public or known in the industry, except for disclosure necessary in the
course of Employee’s duties or with the express written consent of ISS. All
Confidential and Proprietary Information, including all copies, notes
regarding, correspondence and/or electronic communications regarding, and
replications of such Confidential and Proprietary Information will remain the
sole property of ISS and must be returned to ISS immediately upon termination
of Employee’s employment.

                    (c)          Employee
acknowledges that ISS’s Confidential and Proprietary Information constitutes a
unique and valuable asset of ISS and represents a substantial investment of
time and expense by ISS, and that any disclosure or use of such knowledge or
information other than for the sole benefit of ISS would be wrongful and would
cause irreparable harm to ISS. 

                    (d)          The
foregoing obligations of confidentiality do not apply to any knowledge or
information that is now published or which subsequently becomes generally
publicly known in the form in which it was obtained from ISS, other than as a
direct or indirect result of the breach of this Agreement by Employee.

A-1

       2.          Return
of Company Property. Upon termination of employment with ISS for whatever
reason, or at any other time at the request of ISS, Employee will deliver to a
designated Company representative all records, documents, hardware, software,
and all other Company property and all copies of such Company property in
Employee’s possession. Employee acknowledges and agrees that all such materials
are the sole property of ISS and that he will certify in writing to ISS at the
time of delivery that he has complied with this obligation.

       3.          Noncompetition
Covenant. ISS and Employee agree that, due to Employee’s position with ISS,
Employee will have access to ISS’s Confidential and Proprietary Information and
has developed and will continue to develop certain goodwill and relationships
on behalf of ISS. Employee acknowledges that ISS will only release its Confidential
and Proprietary Information, and will only permit Employee to continue to
generate this goodwill and these relationships, upon the receipt of assurances
that Employee will not use the information, goodwill, or relationships to ISS’s
disadvantage and, accordingly, agrees to the following provisions:

                    (a)          Agreement
Not to Compete. During the term of his employment with ISS, and for a
period of twelve
(12) months after the termination of such employment for any reason,
Employee will not, directly or indirectly, serve as an employee, agent,
consultant, director, stockholder or owner, or render services to any
Conflicting Organization. Employee also will not direct any other individual or
business enterprise to engage in such competition with ISS. For the purposes of
this Agreement, “Conflicting Organization” means companies and other
organizations engaged in or which have plans to engage in software-based
computer enabled detection products and solutions for the intelligent transportation
industry and adjacent security and law enforcement markets.

                    (b)          Nonsolicitation
of Customers or Suppliers. During the term of his employment with ISS, and
for a period of twelve (12) months after the termination of such employment
for any reason, Employee agrees that he will not, directly or indirectly,
divert, solicit, approach, contact, call upon, accept business from, or sell or
render services to any client/customer or prospective client/customer of ISS
who was solicited or serviced directly by Employee at any time during the
twelve (12) months prior to his termination from employment, or where he
supervised, directly or indirectly, in whole or in part, the solicitation or
service activities related to such clients or prospects during the same
twelve-month period. Employee also will not, directly or indirectly, aid or
assist any other person, firm, or corporation in doing what he himself cannot
do under the terms of this Agreement. Employee will not in any way interfere or
attempt to interfere with ISS’s relationships with any of its actual or
potential customers, suppliers, or subcontractors.

                    (c)          Nonsolicitation
of Employees. Employee recognizes that ISS’s work force constitutes an
important and vital aspect of its business. During the term of his employment
with ISS, and for a period of twelve (12) months after the termination of
such employment for any reason, Employee will not, directly or indirectly,
hire, solicit, employ, or attempt to employ, any employee or director of ISS,
or otherwise directly or indirectly interfere with or disrupt relationships,
contractual or otherwise, between ISS and any of its employees, directors, or
consultants.

                    (d)          Acknowledgment.
Employee agrees that the restrictions and agreements contained in this
Agreement (and particularly in this Paragraph 3) are reasonable and necessary
to protect the legitimate interests of ISS, and that any violation of this
Agreement will cause substantial and irreparable harm to ISS that would not be
quantifiable and for which no adequate remedy would exist at law. Employee
further acknowledges that he has had the opportunity to request that legal
counsel review this Agreement and, having exhausted such right, agrees to the
terms herein without reservation. Accordingly, Employee authorizes the issuance
of injunctive relief by any court of appropriate jurisdiction, without the
requirement of posting bond, for any violation of this Agreement, and agrees that
ISS shall be entitled to the recovery of reasonable attorneys’ fees incurred in
the enforcement of this Agreement.

A-2

       4.          Assignment
of Inventions. Employee agrees to promptly disclose to ISS inventions,
ideas, processes, writings, designs, developments and improvements, whether or
not protectable under the applicable patent, trademark or copyright statutes,
which Employee makes, conceives, reduces to practice, or learns during his/her
employment by ISS, either alone or jointly with others, relating to any
business in which ISS is or may be concerned (“Inventions”). Such disclosures
will be made by Employee to ISS in a written report, setting forth in detail
the structures, procedures and methodology employed and the results achieved.

                    (a)          To
the extent that any Invention qualifies as “work made for hire” as defined in
17 U.S.C. § 101 (1976), as amended, such Invention will be the exclusive
property of ISS. Moreover, Employee agrees to treat every work or idea created
or acquired by or on behalf of Employee for ISS as a “work made for hire.” It
is the intent of both Employee and ISS that ISS have unrestricted ownership in
all of such works and to any derivative works thereof, without further
compensation of any kind to Employee or to those with whom Employee may work. 

                    (b)          Consistent
with and to the extent permitted by law, Employee hereby assigns and agrees to
assign to ISS all rights in and to these Inventions, including, but not limited
to, applications for United States and foreign patents and resulting patents
and to further cooperate with ISS in maintaining, obtaining, and protecting
such proprietary rights. Employee shall execute all applications, assignments
and other papers necessary to enable ISS to obtain full protection and title to
such matter and inventions, and Employee hereby waives any claim of moral right
that Employee may have in or in connection with any such work.

                    (c)          Employee
further acknowledges that he received notice from ISS that his obligation to
assign rights in and to any Inventions does not apply to an Invention for which
no equipment, supplies, facility or trade secret information of ISS was used
and which was developed entirely on Employee’s own time, and (1) which does not
relate (A) directly to the business of ISS or (B) to ISS’s actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Employee for ISS.

                    (d)          Employee
has attached a complete list of all existing patentable or non-patentable
inventions, original works of authorship, derivative works, trade secrets,
trademarks, copyrights, service marks, discoveries, patents, technology, algorithms,
computer software, application programming interfaces, protocols, formulas,
compositions, ideas, designs, processes, techniques, know-how, data, and all
improvements thereto to which Employee claims ownership as of the date of this
Agreement and which Employee desires to clarify are not subject to this
Agreement (“Excluded Inventions”). If no such list is attached to this
Agreement, Employee represents that he has no such Excluded Inventions at the
time of signing this Agreement.

                    (e)          Employee
further agrees that prior to separation from employment with ISS for any
reason, he will disclose to ISS, in a written report, all Inventions, the
rights to which he has agreed to assign to ISS under (a) and (b) above, and
which he has not previously disclosed.

                    (f)          In
the event of any dispute concerning whether an Invention made or conceived by
Employee is the property of ISS, such Invention will be presumed to be the
property of ISS, and Employee will bear the burden of establishing otherwise in
any arbitration, litigation, or similar proceeding.

A-3

       5.          Injunctive
Relief. Because the Confidential and Proprietary Information described
above and the products derived therefrom are unique, peculiar and of great
value to ISS, ISS shall be entitled to injunctive relief to restrain Employee
from violating or threatening to violate any provisions contained herein. The
parties also agree that, because of the unique nature of their relationship and
the information and products to which Employee has been exposed through this
relationship, ISS shall be entitled to an injunction to be issued by any Court
of competent jurisdiction enjoining and restraining Employee from committing
any violation of this Agreement, and Employee hereby consents to the issuance
of such injunction. Proceedings may be initiated against Employee or Employee’s
legal representatives or assigns. ISS shall be entitled to its reasonable costs
and attorneys’ fees incurred in enforcing this provision.

       6.          Miscellaneous.

                    (a)          At-will
Employment. Nothing in this Agreement creates any rights of employment.
Employee is, and remains, an “at-will” employee. 

                    (b)          Severability.
It is further agreed and understood by the parties that if any part, term or
provision of this Agreement should be unenforceable, invalid, or illegal under
any applicable law or rule, the offending term or provision will be struck and
the remaining provisions of the Agreement will not be affected or impaired
thereby. 

                    (c)          Assignability.
The terms, conditions, and covenants of this Agreement shall be assignable to
the successors and assigns of ISS. 

                    (d)          Waiver.
Failure of ISS at any time to enforce any provision of this Agreement shall not
be interpreted as a waiver of any provision of ISS’s rights under this
Agreement.

                    (e)          Entire
Agreement. This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes any
prior understandings, agreements or representations, written or oral, relating
to such subject matter. 

                    (f)          Modification,
Amendment, Waiver or Termination. No provision of this Agreement may be
modified, amended, waived or terminated except by an instrument in writing
signed by the parties to this Agreement. No delay or waiver, express or
implied, by ISS of any right or any breach by Employee shall constitute a
waiver of any other right or breach by Employee.

                    (g)          Governing
Law. This Agreement will be governed by and interpreted according to the
substantive laws of the State of Minnesota without regard to such state’s
conflicts law. 

          IN
WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date memorialized in the first paragraph.

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 Image
 Sensing Systems, Inc.

 
	
  

 	
  

 	
  

 	
  

 
	
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A-4

APPENDIX B
TO THE AMENDED AND RESTATED EMPLOYMENT AGREEMENT

BETWEEN 

IMAGE SENSING SYSTEMS, INC. AND DALE E. PARKER

          WHEREAS,
the parties entered into an Amended and Restated Employment Agreement which
became effective on ______________, 2014 (the “Employment Agreement”); and

          WHEREAS,
in order to receive certain severance payments and related benefits under
Section 6 of the Employment Agreement, the parties agreed that Parker would be
required to sign a release of claims at the time of the event contemplated by
Section 6; and

          WHEREAS,
the parties have agreed to a form of release substantially similar to that set
forth in this Appendix B; and

          WHEREAS,
under the terms of this Appendix B, Parker agrees to release all claims –
whether known or unknown – that he may have against ISS, or any of its
respective officers, directors, members, managers, employees or agents, parents
or affiliates, through the date of his signature on this Appendix B; 

          NOW,
THEREFORE, it is mutually agreed by and between the
parties for good and valuable consideration as follows:

          A          Parker
affirms that he is signing this Appendix B on or after the termination
of his employment, as described in Section 6 of the Employment Agreement.

          B.          Parker,
for good and valuable consideration, does hereby fully and completely release
and waive any and all claims, complaints, causes of action, demands, suits, and
damages, of any kind or character, which he has or may have against ISS, or any
of its respective officers, directors, members, managers, employees or agents,
parents or affiliates arising out of any acts, omissions, conduct, decisions,
behavior, or events occurring up through the date of his signature on this Appendix
B.

          Parker
understands that he is giving up any and all claims (whether now known or
unknown) that he may have including (without limitation) claims relating to his
employment with ISS, and the cessation of his employment with ISS, including,
but not limited to, any claims arising under or based upon the Minnesota Human
Rights Act; Title VII of the Civil Rights Act of 1964, as amended; the
Americans With Disabilities Act (“ADA”); the Family & Medical Leave Act
(“FMLA”); the Age Discrimination in Employment Act (“ADEA”), as amended by the
Older Workers Benefit Protection Act; or any other federal, state, or local
statute, ordinance, or law. Parker also understands that he is giving up all
other claims, including those grounded in contract or tort theories, including
but not limited to breach of contract; tortious interference with contractual
relations; promissory estoppel; breach of manuals or other policies; assault;
battery; fraud; false imprisonment; invasion of privacy; intentional or
negligent misrepresentation; defamation, including libel, slander, defamation
and self-publication defamation; intentional or negligent infliction of
emotional distress; sexual harassment; or any other theory.

          Parker
further understands that he is releasing, and does hereby release, any claims
for damages, by charge or otherwise, whether brought by him or on his behalf by
any other party, governmental or otherwise, and agrees not to institute any
claims for damages via administrative or legal proceedings
against ISS, or any of its respective officers, directors, members, managers,
employees or agents, parents or affiliates. Parker understands that, while he
retains his right to bring an administrative charge with the Equal Employment
Opportunity Commission or the Minnesota Department of Human Rights, he waives
and releases any and all rights to money damages or other legal relief awarded
by any governmental agency related to any charge or claim. 

B-1

          C.          Parker
understands that he has the right to seek legal counsel before entering into
this Appendix B and that he has 21 days from the date of his termination
to execute this Appendix B.

          D.          Parker
understands that he may revoke this release (Appendix B) (1) with
respect to potential age-related claims within the seven-day period following
the date he signs it and (2) with respect to potential claims under the
Minnesota Human Rights Act within the fifteen-day period following the date he
signs it. Parker also understands that, if he does revoke this release (Appendix
B), he gives up any right to the consideration provided to him the benefits
described in Paragraph 6 of the Employment Agreement.

          E.          Parker
acknowledges that he has read this Appendix B, that he understands it,
and that he enters into Appendix B voluntarily.

	
  

 	
  

 	
  

 	
  

 	
  

 
	
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 Dale E. Parker

 

B-2

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