Document:

Exhibit 10.7 to Image Sensing Systems, Inc. Form 10-K for fiscal year ended December 31, 2007

Exhibit 10.7

PROMISSORY NOTE

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Principal 

	
Loan Date 

	
Maturity 

	
Loan
No 

	
Call / Coll 

	
Account 

	
Officer 

	
Initials 

	
$3,000,000.00 

	
12-04-2007 

	
05-31-2008 

	
3757618353-109 

	
 

	
592182 

	
Z1154 

	
 

	
References in the boxes above are for Lender’s use only and do not limit the applicability of
this document to any particular loan or item. 
Any item above containing “***” has been omitted due to text length
limitations.

	
 

	
 

	
 

	
 

	
 

	
Borrower: 

	
Image
Sensing Systems, Inc.

1600 University Avenue
W, Ste 500

Saint Paul, MN 55104 

	
 

	
Lender: 

	
Wells
Fargo Bank, National Association

McKnight Business
Banking

670 McKnight Road N. 

St. Paul, MN 55119 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Principal Amount:  
$3,000,000.00 

	
Initial Rate:  7.500% 

	
Date of Note:  December 4,
2007 

PROMISE TO PAY. Image Sensing Systems,
Inc. (“Borrower”) promises to pay to Wells Fargo Bank, National Association (“
Lender”), or order, in lawful money of the United States of
America, the principal amount of Three Million & 00/100 Dollars
($3,000,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until repayment of
each advance.

PAYMENT. Borrower will pay this loan in
one payment of all outstanding principal plus all accrued unpaid interest on May
31, 2008. In addition, Borrower will pay regular
monthly payments of all accrued unpaid interest due as of each payment date,
beginning December 30, 2007, with all subsequent interest
payments to be due on the same day of each month after that. Unless otherwise
agreed or required by applicable law, payments will be applied
first to any accrued unpaid interest; then to principal; and then to any late
charges. The annual interest rate for this Note is computed on
a 365/360 basis; that is, by applying the ratio of the annual interest rate
over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender’s address shown above or at
such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this
Note is subject to change from time to time based on changes in an index which
is the floating
rate equal to the Prime Rate set from time to time by Lender that serves as the
basis upon which effective rates of interest are calculated for those loans making reference thereto
(the “Index”). The Index is not necessarily the lowest rate charged by Lender
on its loans and is set by Lender in its sole discretion. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute index after notifying
Borrower. Lender will tell Borrower the current Index rate upon Borrower’s
request. The interest rate change will not occur more often than each time the Index changes. Each
change in the Prime Rate of interest hereunder shall become effective on the
date each Prime
Rate change is announced within Lender. The “initial rate” is the rate per
annum which Borrower and Lender agree shall be the initial rate of this Note, and the
“Index currently” is the Index amount upon which said initial rate is based;
they do not necessarily reflect the Index in effect on the date of this Note. Borrower
understands that Lender may make loans based on other rates as well. The Index
currently is 7.500% per annum. The interest rate to be applied to the unpaid principal balance
during this Note will be at a rate equal to the Index, resulting in an initial
rate of 7.500% per annum. NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by applicable law. 

PREPAYMENT. Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower’s obligation to continue to make payments of accrued unpaid interest.
Rather, early payments
will reduce the principal balance due. Borrower agrees not to send Lender
payments marked “paid in full”, “without recourse”, or similar language. If
Borrower sends such a payment, Lender may accept it without losing any of
Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount
owed to Lender. All written communications concerning disputed amounts, including
any check or
other payment instrument that indicates that the payment constitutes “payment
in full” of the amount owed or that is tendered with other conditions or limitations
or as full satisfaction of a disputed amount must be mailed or delivered to:
Wells Fargo Bank, National Association, 730 2nd Avenue South, Suite 1000 Minneapolis, MN 55479.

LATE CHARGE. If a payment is 15 days
or more late, Borrower will be charged 5.000%
of the unpaid portion of the regularly scheduled payment or $15.00, whichever
is greater.

INTEREST AFTER DEFAULT. Upon default, including
failure to pay upon final maturity, the interest rate on this Note shall be
increased by adding
a 4.000 percentage point margin (“Default Rate Margin”). The Default Rate
Margin shall also apply to each succeeding interest rate change that would have
applied had there been no default. However, in no event will the interest rate
exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of
Default”) under this Note: 

	
 

	
 

	
 

	
Payment Default. Borrower fails to make any payment when due under
 this Note.

	
 

	
 

	
 

	
Other Defaults. Borrower fails to comply with or to perform any
 other term, obligation, covenant or condition contained in this Note or in any of the related
 documents or to comply with or to perform any term, obligation, covenant or
 condition contained in any other agreement between Lender and Borrower.

	
 

	
 

	
 

	
Default in Favor of Third Parties. Borrower or any Grantor
 defaults under any loan, extension of credit, security agreement, purchase or
 sales
 agreement, or any other agreement, in favor of any other creditor or person
 that may materially affect any of Borrower’s property or Borrower’s ability to
 repay this Note or perform Borrower’s obligations under this Note or any of
 the related documents.

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Creditor or Forfeiture Proceedings. Commencement of
 foreclosure or forfeiture proceedings, whether by judicial proceeding,
 self-help, repossession
 or any other method, by any creditor of Borrower or by any governmental
 agency against any collateral securing the loan. This includes a
 garnishment of any of Borrower’s accounts, including deposit accounts, with
 Lender. However, this Event of Default shall

	
 

	
 

	
 

	
Loan No: 3757618353-109

	
PROMISSORY NOTE

 (Continued)

	
Page 2

	
 

	
 

	
 

	
 

	
 

	
 

	
not
 apply if there is a good faith
 dispute by Borrower as to the validity or reasonableness of the claim which
 is the basis of the creditor or forfeiture proceeding and if Borrower gives
 Lender written notice of the creditor or forfeiture proceeding and deposits
 with Lender monies or a surety bond for the creditor or forfeiture proceeding,
 in an amount determined by Lender, in its sole discretion, as being an
 adequate reserve or bond for the dispute.

	
 

	
 

	
 

	
Events Affecting Guarantor. Any of the preceding
 events occurs with respect to any guarantor, endorser, surety, or
 accommodation party of any of the indebtedness or any guarantor, endorser, surety, or
 accommodation party dies or becomes incompetent, or revokes or disputes the validity
 of, or liability under, any guaranty of the indebtedness evidenced by this
 Note.

	
 

	
 

	
 

	
Change In Ownership. Any change in ownership
 of twenty-five percent (25%) or more of the common stock of Borrower.

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Insecurity. Lender in good faith believes itself insecure.

LENDER’S RIGHTS. Upon default, Lender may
declare the entire unpaid principal balance under this Note and all accrued unpaid
interest immediately
due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower will
pay Lender that amount. This includes, subject to any limits under applicable
law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses, whether or not there is a
lawsuit, including reasonable attorneys’ fees, expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or injunction), and
appeals. If not prohibited by applicable law, Borrower also will pay any court
costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed
by federal law applicable to Lender and, to the extent not preempted by federal
law, the laws of the State of Minnesota without regard to
its conflicts of law provisions. This Note has been accepted by Lender in the
State of Minnesota.

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

LINE OF CREDIT. This Note evidences a
revolving line of credit. Advances under this Note may be requested either
orally or in writing by Borrower or by an authorized person. Lender may, but
need not, require that all oral requests be confirmed in writing. All
communications, instructions, or directions by telephone or otherwise to Lender are to be
directed to Lender’s office shown above. Borrower agrees to be liable for all sums either: (A)
advanced in accordance with the instructions of an authorized person or (B)
credited to any of Borrower’s accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender’s internal records, including daily computer print-outs.

PAYMENT DUE DATE DEFERRAL. Payment invoices will be
sent on a date (the “billing date”) which is prior to each payment due date. If
this Note is
booked after the billing date for the first scheduled payment, Lender may defer
each scheduled payment date and the maturity date by one month.

FINANCIAL STATEMENTS. Borrower agrees to
provide to Lender, upon request, financial statements prepared in a manner and
form acceptable to Lender, and copies of such tax returns and other financial information
and statements as may be requested by Lender. Borrower shall also furnish such
information regarding Borrower or the Collateral as may be requested by Lender.
Borrower warrants that all financial statements and information provided to Lender are and will be
accurate, correct and complete.

AUTOMATIC DEBIT OF PAYMENTS. Borrower agrees to
maintain Borrower’s deposit with Lender, account number 3971599400, from which
Lender is
authorized to debit loan payments, fees and such other sums as may be payable
under the Note or related loan documents as they become due with respect to this loan and any
renewals and extensions of this loan, and shall keep such deposit account in
good standing at all times. This authorization shall remain in full force and effect until
discontinued by Lender, or until written revocation from Borrower has been
received and processed by Lender at the address of Lender set out in the
“PREPAYMENT” or “PREPAYMENT PENALTY” paragraph of the Promissory Note. If this
authorization is revoked, or if the account is not maintained in good standing,
or if Lender is not able to collect such amounts from the account as they become due for any
reason, then Lender may increase the pre-maturity interest rate applicable to
this Credit immediately
and without notice by one quarter percent (1/4%).

PRIMARY DEPOSIT ACCOUNT. Borrower agrees to
maintain Borrower’s primary deposit account with Lender or any banking
affiliate of Lender (defined as the deposit account into which substantially all of
Borrower’s receipts from its operations are deposited and from which
substantially all of Borrower’s disbursements for its operations are made), and
shall keep it at all times in good standing.

EXTENSION AND RENEWAL. Lender may, at Lender’s
discretion, renew or extend this Note by written notice (“Renewal Notice”) to
Borrower. Such renewal or extension shall be effective as of the maturity date
of this Note, and may be conditioned among other things on modification of
Borrower’s obligations hereunder, including but not limited to a decrease in
the amount available under this Note, an increase in the interest rate applicable to this Note
and/or payment of a fee for such renewal or extension. In addition, Lender may
increase the principal amount available under the Note at any time. Borrower shall be
deemed to have accepted the terms of each Renewal Notice, including any notice
of an increase in availability, if Borrower does not deliver to Lender written
rejection of such renewal or extension within 10 days following receipt of such
Renewal
Notice, or if Borrower draws additional funds following the date of
notification. After any renewal or extension of Borrower’s obligations under this
Note, the term “maturity date” as used in this Note shall mean the new maturity
date set forth in the Renewal Notice. This Note may be renewed and extended repeatedly in
this manner.

LINE ADVANCES. Notwithstanding anything
to the contrary, requests for advances communicated to any office of Lender by
any person believed
by Lender in good faith to be authorized to make the request, whether written,
verbal, telephonic or electronic, may be acted upon by Lender, and Borrower will
be liable for sums advanced by Lender pursuant to such request. Such requests
for advances shall be deemed authorized by Borrower, and Lender shall not be
liable for such advances made in good faith, and with respect to advances
deposited to the credit of any deposit account of Borrower, such advances, when so
deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. Borrower agrees to indemnify and hold
Lender harmless from and against all damages, liabilities, costs and expenses
(including attorney’s fees) arising out of any claim by Borrower or any third party against Lender
in connection with Lender’s performance of transfers as described above.

CREDIT BUREAU INQUIRIES. The parties hereto, and
each individual signing below in a representative capacity, agree that Lender
may obtain business
and/or personal credit reports and tax returns on each of them in their
individual capacities.

	
 

	
 

	
 

	
Loan No: 3757618353-109

	
PROMISSORY NOTE

 (Continued)

	
Page 3

	
 

	
 

	
 

APPLICATION OF PAYMENTS. Notwithstanding the
application of payment provided in the Payment section of this Note, unless
otherwise agreed, all sums received from Borrower may be applied to interest,
fees, principal, or any other amounts due to Lender in any order at Lender’s sole discretion. If a
final payment amount is set out in the Payment section of this Note, Borrower
understands that it is an estimate, and that the actual final payment amount will depend upon
when payments are received and other factors.

ADDITIONAL EVENTS OF DEFAULT. In addition to the Events
of Default described above, the following shall be an Event of Default, if
applicable: (i) any change in ownership of an aggregate of twenty-five percent
(25%) or more of the common stock, members’ equity or other ownership interest in
Borrower, (ii) the withdrawal, resignation or expulsion of any one or more of
the general partners in Borrower with an aggregate ownership interest in Borrower of
twenty-five percent (25%) or more, or (iii) any of the preceding events occurs with respect to any general partner of
Borrower or guarantor of any indebtedness of Borrower under this Note.

DEFAULT RATE. At Lender’s option and
without prior notice, upon default or at any time during the pendency of any
event of default under this Note or any related loan documents, Lender may increase
the interest rate applicable to the Note by four percent (4.0%) (the “Default
Rate”), not
to exceed the maximum lawful rate. (If the applicable rate is a floating or variable rate, then
the Default Rate will be a varying rate equal to the sum of the normally
applicable Index and spread, plus four percent.) The Default Rate shall remain
in effect until the default has been cured and that fact has been communicated
to and confirmed by Lender. Lender shall give written notice to Borrower of
Lender’s imposition of the Default Rate. If the Note is not paid at maturity, Lender
may impose the Default Rate from the maturity date to the date paid in full
without notice.
Lender’s imposition of the Default Rate shall not constitute an election of
remedies or otherwise limit Lender’s rights concerning other remedies available to
Lender as a result of the occurrence of an event of default. In the event of a
conflict between the provisions of this paragraph and any other provision of
this Note or any related agreement, the provisions of this paragraph shall
control. If a default rate is prohibited by applicable law, then the interest rate
applicable after default or maturity shall be the prematurity rate which would
be applicable in the absence of any default.

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

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

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

ADDITIONAL SECURITY. Notwithstanding anything
to the contrary in this or any related agreement, to further secure the
indebtedness and obligations of the Note and related loan documents, Borrower pledges and
grants to Lender a security interest in Borrower’s accounts with Lender, including without
limitation, checking, savings, investment, general and special accounts, and
accounts held for safekeeping, held jointly with others, and accounts opened in the future,
excluding however all IRAs, Keogh accounts, and trust accounts to the extent a
security interest
would be invalid or prohibited by law.

LOAN FEE AUTHORIZATION. Borrower shall pay to
Lender any and all fees as specified in the “Disbursement Request and
Authorization” executed by Borrower in connection with this Note. Such fees are
non-refundable and shall be due and payable in full immediately upon Borrower’s execution of
this Note.

LETTERS OF CREDIT AND FOREIGN EXCHANGE. Borrower shall have
available a Letter of Credit Subfeature and a Foreign Exchange Subfeature as described in this
section, in a total amount not to exceed the available principal amount of the
line of credit evidenced by this Note.

A. Letter of
Credit Subfeature. As a subfeature this Note, Lender may from time to time issue or cause
to be issued by a Wells Fargo Affiliate (such Lender or Wells Fargo Affiliate being referred
to herein as the “Issuer”) for your account, commercial and/or standby letters
of credit (each individually, a “Letter of Credit” and collectively “Letters of Credit”);
provided however, that the form and substance of each Letter of Credit shall be subject to
approval by the Issuer in its sole discretion. Each Letter of Credit shall be
issued for a term designated by Borrower; provided however, that no Letter of
Credit shall have an expiration subsequent to the maturity of the Note. Each
Letter of Credit shall be subject to the terms and conditions of a Letter of
Credit Agreement and related documents, if any, required by Issuer in
connection with the issuance of such Letter of Credit (each individually a “Letter of
Credit Agreement” and collectively, the “Letter of Credit Agreements”). Each
draft paid by Issuer under a Letter of Credit and reimbursed by Lender shall be paid with an
advance under the Note and shall be repaid by Borrower in accordance with the
terms and conditions of the Note applicable to such advances; provided however,
that if advances under the Note are not available, for any reason whatsoever,
at the time any amount is paid by Lender, then the full amount of such advance
shall be immediately due and payable, together with interest thereon, from the date such
amount is paid by Issuer or Lender to the date such amount is fully repaid by
Borrower, at the rate of interest applicable to advances under the Note. In such event,
Borrower agrees that Issuer or Lender, at Issuer’s or Lender’s sole discretion, may debit
Borrower’s deposit account(s) with Lender or a Wells Fargo Affiliate for the
amount of any such draft. Upon the issuance of an amendment to a Letter of Credit, upon the
reimbursement by Lender of a draft under any Letter of Credit, and otherwise as
agreed by Borrower
and Issuer pursuant to the Letter of Credit Agreements, Borrower shall pay to
Issuer or Lender fees determined in accordance with Issuer’s/Lender’s standard
fees and charges at such time.

B. Foreign
Exchange Subfeature. As a subfeature of this Note, Lender or a Wells Fargo
Affiliate (such Lender or Wells Fargo Affiliate being referred to herein as the
“Exchanger”) may make available to Borrower a foreign exchange facility under
which Exchanger, from time to time up to and including the maturity date of the Note,
will enter into foreign exchange contracts for the account of Borrower for the
purchase and/or sale by Borrower in United States Dollars of the foreign
currency or currencies specified in the foreign exchange agreement establishing
the foreign exchange facility. Each foreign exchange transaction shall be
subject to the terms and conditions of the foreign exchange agreement, the form and substance of
which must be acceptable to the Exchanger in all respects in its sole
discretion.

C. Subfeature
Limits.
The outstanding amount of all Letters of Credit and foreign exchange contracts,
plus the reserve percentage applicable to foreign exchange contracts, shall be reserved under
the Note and shall not be available for Note advances. The amount of all
outstanding foreign
exchange contracts plus a reserve percentage of 20% of said amount, plus the
aggregate principal amount of all outstanding Letters of Credit, plus the
principal amounts of any advances outstanding under the Note, shall not at any
time exceed the principal amount of the Note, unless allowed by Lender at Lender’s full
discretion. Any excess amount shall be fully due and payable immediately
without notice. As used herein, Wells Fargo Affiliate means any present or
future subsidiary of Wells Fargo & Company, any subsidiary thereof, and any
successors of such
financial service companies.

	
 

	
 

	
 

	
Loan No:
 3757618353-109

	
PROMISSORY NOTE

 (Continued)

	
Page 4

	
 

	
 

	
 

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

Governing Rules. Any arbitration
proceeding will (i) be governed by the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (ii) be conducted by the AAA (American
Arbitration Association), or such other administrator as the parties shall
mutually agree upon, in accordance with the AAA’s commercial dispute
resolution procedures, unless the claim or counterclaim is at least
$1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which
case the arbitration shall be conducted in accordance with the AAA’s optional
procedures for large, complex commercial disputes (the commercial dispute resolution procedures
or the optional procedures for large, complex commercial disputes to be
referred to, as applicable, as the “Rules”). If there is any inconsistency
between the terms hereof and the Rules, the terms and procedures set forth herein shall
control. Arbitration proceedings hereunder shall be conducted at a location
mutually agreeable to the parties, or if they cannot agree, then at a location
selected by the AAA in the state of the applicable substantive law primarily
governing the Credit. Any party who fails or refuses to submit to arbitration
following a demand by any other party shall bear all costs and expenses
incurred by such other party in compelling arbitration of any Dispute. Arbitration may be
demanded at any time, and may be compelled by summary proceedings in Court. The
institution
and maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party, including
the plaintiff, to submit the controversy or claim to arbitration if any other
party contests such action for judicial relief. The arbitrator shall award all costs and expenses
of the arbitration proceeding. Nothing contained herein shall be deemed to be a
waiver by any party that is a Bank of the protections afforded to it under 12
U.S.C. °91 or any similar applicable state law.

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

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

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

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

State-Specific Provisions.

If California law governs the Dispute, the
following provision is included:

Real Property Collateral; Judicial
Reference. Notwithstanding anything herein to the contrary, no Dispute shall be
submitted to arbitration if the Dispute concerns indebtedness secured directly
or indirectly, in whole or in part, by any real property unless the holder of
the mortgage, lien or security interest specifically elects in writing to proceed with the
arbitration. If any such Dispute is not submitted to arbitration, the Dispute shall, at the election of
any party, be referred to a referee in accordance with California Code of Civil
Procedure Section 638 et seq., and this general reference agreement is intended
to be specifically enforceable in accordance with said Section 638. A referee
with the qualifications required herein for arbitrators shall be selected
pursuant to the AAA’s selection procedures. Judgment upon the decision rendered
by a referee shall
be entered in the court in which such proceeding was commenced in accordance
with California Code of Civil Procedure Sections 644 and 645.

If Idaho law governs the Dispute, the
following provision is included:

Real Property Collateral; Judicial
Reference. Notwithstanding anything herein to the contrary, no dispute shall be
submitted to arbitration if the dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real property unless (i) the holder of the
mortgage, lien or security interest specifically elects in writing to proceed
with the arbitration, or (iii) all parties to the arbitration waive any rights or
benefits that
might accrue to them by virtue of the single action rule statute of Idaho,
thereby agreeing that all indebtedness and obligations of the parties, and all
mortgages, liens and security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable.

If Montana law governs the Dispute, the
following provision is included:

	
 

	
 

	
 

	
Loan No:
 3757618353-109

	
PROMISSORY NOTE

 (Continued)

	
Page 5

	
 

	
 

	
 

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute
shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any
real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single
action rule statute of Montana, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable.

If Nevada law governs the Dispute, the following provision is included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute
shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any
real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single
action rule statute of Nevada, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and
security interests securing such indebtedness and obligations, shall remain fully valid and enforceable.

If Utah law governs the Dispute, the following provision is included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute
shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any
real property unless the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the
arbitration. If any such Dispute is not submitted to arbitration, the Dispute shall, at the election of any party, be referred to
a master in accordance with Utah Rule of Civil Procedure 53, and this general reference agreement is intended to be specifically
enforceable. A master with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s
selection procedures. Judgment upon the decision rendered by a master shall be entered in the court in which such proceeding was
commenced in accordance with Utah Rule of Civil Procedure 53(e).

PRIOR NOTE. This Note is given as a replacement for and not satisfaction of Note dated May 31, 2006 in the
amount of $1,000,000.00.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs,
personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and
assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the
Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. In addition, Lender
shall have all the rights and remedies provided in the related documents or available at law, in equity, or otherwise. Except as
may be prohibited by applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised singularly
or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Borrower shall not affect Lender’s right to declare a default and
to exercise its rights and remedies. Borrower and any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and
unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s
security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made. The obligations under this Note are joint and several.

SECTION DISCLOSURE. To the extent not preempted by federal law, this loan is made under Minnesota Statutes,
Section 334.01.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE
VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. 

BORROWER:

IMAGE SENSING SYSTEMS, INC.

	
 

	
 

	
 

	
 

	
 

	
 

	
By:  

	
 

	
 

	
By:  

	
/s/ Greg Smith
	
 

	
 

	
Kenneth R. Aubrey, President and CEO of Image
 Sensing Systems, Inc. 

	
 

	
 

	
Gregory R. L. Smith, CFO of Image Sensing 
 Systems, Inc. 

	
 

	
 

	
LASER PRO Landing, Ver. 5.38, 10.001 Copr. Harland
 Financial Solutions, Inc. 1997, 2007. All Rights Reserved.
MN
 X:\LPROD\CFI\LPL\D20.FC TR-48697 PR-689

RIDER TO 
PROMISSORY NOTE

          This Rider is made this 4th day of December 2007, by
and between Image Sensing Systems, Inc. (the “Borrower”) and Wells Fargo Bank, National Association (the
“Lender”).

          Reference is hereby made to that certain Promissory
Note dated of even date hereof in the original principal amount of $3,000,000.00 made between the Borrower and the Lender.
Capitalized terms not otherwise defined herein have the same meaning as set forth in the above described Promissory Note. This
Rider shall be read consecutively with, and deemed incorporated into such Promissory Note.

          NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, each paid to the other, it is agreed that the Promissory Note is amended by the addition of
the following:

          1. The DEFAULT section of the
Promissory Note is amended by the deleting therefrom the Change in Ownership clause as provided therein and the following
substituted therefor:  

	
 

	
 

	
 

	
“Change in Ownership. Any change in ownership of forty percent
 (40%) or more of the common stock
of Borrower.” 

          2. The ADDITIONAL EVENTS
OF DEFAULT section of the Promissory Note is amended by the deleting it in its entirety and the following
substituted therefor:  

	
 

	
 

	
 

	
ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default described above, the following shall be
an Event of Default, if applicable: (i) any change in ownership of an aggregate of forty percent (40%) or more of the common
stock, members’ equity or other ownership interest in Borrower, (ii) the withdrawal, resignation or expulsion of any one or
more of the general partners in Borrower with an aggregate ownership interest in Borrower of forty (40%) or more, or (iii) any of
the preceding events occurs with respect to any general partner of Borrower or guarantor of any indebtedness of Borrower under
this Note.”

          Except as modified by this Rider, the Promissory Note
remains unchanged and in full force and effect.

IN WITNESS WHEREOF, the Borrower and the Lender have executed this Rider as of the date and year first above
written.

	
 

	
 

	
“BORROWER”

	
“LENDER”

	
 

	
 

	
IMAGE SENSING SYSTEMS, INC.

	
WELLS FARGO BANK,

	
 

	
NATIONAL ASSOCIATION

	
 

	
 

	
 

	
 

	
 

	
 

	
By:  

	
 

	
 

	
By:  

	
/s/ Christine K. Warner
	
 

	
 

	
Kenneth R. Aubrey

	
 

	
 

	
 

	
 

	 
	
Its: 

	
President and Chief Executive Officer

	
 

	
Its: 

	
VP

	
 

	
 

	
 

	
 

	
 

	
 

	 
	
By: 
	
/s/ Greg Smith
	
 

	
 

	
 

	
 

	
Gregory R. L. Smith

	
 

	
 

	
 

	
 

	 
	
Its: 

	
Chief Financial Officer

	
 

	
 

	
 

	
 

Rider - Mg l3l3vl(MK)Exhibit 10.8 to Image Sensing Systems, Inc. Form 10-K for fiscal year ended December 31, 2007

Exhibit 10.8

BUSINESS LOAN AGREEMENT

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	 

	
Principal
 $8,000,000.00

	
Loan Date
 12-04-2007

	
Maturity
 09-30-2008

	
Loan No
 3757618353

	
Call / Coll

	
Account
 592178

	
Officer
 Z1154

	
Initials

	
References in the boxes above are for Lender’s use only and do not limit the applicability of
this document to any particular loan or item.
 Any item above containing “***” has been omitted due to text length
limitations.

	
 

	
 

	
 

	
 

	
Borrower:

	
Image
 Sensing Systems, Inc.

	
Lender:

	
Wells
 Fargo Bank, National Association

	
 

	
1600
 University Avenue W, Suite 500

	
 

	
McKnight
 Business Banking

	
 

	
Saint
 Paul, MN 55104

	
 

	
670
 McKnight Road N.

	
 

	
 

	
 

	
St. Paul,
 MN 55119

	
 

	 

THIS BUSINESS LOAN AGREEMENT dated December 4, 2007, is made
and executed between Image Sensing Systems, Inc. (“Borrower”) and Wells Fargo
Bank, National Association (“Lender”) on the following terms and conditions.
Borrower has received prior commercial loans from Lender or has applied to
Lender for a commercial loan or loans or other financial accommodations,
including those which may be described on any exhibit or schedule attached to
this Agreement (“Loan”). Borrower understands and agrees that: (A) in granting,
renewing, or extending any Loan, Lender is relying upon Borrower’s
representations, warranties, and agreements as set forth in this Agreement; (B)
the granting, renewing, or extending of any Loan by Lender at all times shall
be subject to Lender’s sole judgment and discretion; and (C) all such Loans
shall be and remain subject to the terms and conditions of this Agreement. 

TERM.
This Agreement shall be effective as of December 4, 2007, and shall continue in
full force and effect until such time as all of Borrower’s Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses,
attorneys’ fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to
the fulfillment to Lender’s satisfaction of all of the conditions set forth in
this Agreement and in the Related Documents.

	
 

	
 

	
 

	
Loan
 Documents. Borrower
 shall provide to Lender the following documents for the Loan: (1) the Note;
 (2) Security Agreements granting to Lender security interests in the
 Collateral; (3) financing statements and all other documents perfecting
 Lender’s Security Interests; (4) evidence of insurance as required below; (5)
 together with all such Related Documents as Lender may require for the Loan;
 all in form and substance satisfactory to Lender and Lender’s counsel.

	
 

	
 

	
 

	
Borrower’s
 Authorization.
 Borrower shall have provided in form and substance satisfactory to Lender
 properly certified resolutions, duly authorizing the execution and delivery
 of this Agreement, the Note and the Related Documents. In addition, Borrower
 shall have provided such other resolutions, authorizations, documents and
 instruments as Lender or its counsel, may require.

	
 

	
 

	
 

	
Payment of
 Fees and Expenses. Borrower
 shall have paid to Lender all fees, charges, and other expenses which are
 then due and payable as specified in this Agreement or any Related Document.

	
 

	
 

	
 

	
Representations
 and Warranties. The
 representations and warranties set forth in this Agreement, in the Related
 Documents, and in any document or certificate delivered to Lender under this
 Agreement are true and correct.

	
 

	
 

	
 

	
No Event
 of Default. There
 shall not exist at the time of any Advance a condition which would constitute
 an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

	
 

	
 

	
 

	
Organization. Borrower is a corporation for profit which
 is, and at all times shall be, duly organized, validly existing, and in good
 standing under and by virtue of the laws of the State of Minnesota. Borrower
 is duly authorized to transact business in all other states in which Borrower
 is doing business, having obtained all necessary filings, governmental
 licenses and approvals for each state in which Borrower is doing business.
 Borrower maintains an office at 1600 University Avenue W, Suite 500, Saint
 Paul, MN 55104. Unless Borrower has designated otherwise in writing, the
 principal office is the office at which Borrower keeps its books and records
 including its records concerning the Collateral. Borrower will notify Lender
 prior to any change in the location of Borrower’s state of organization or
 any change in Borrower’s name.

	
 

	
 

	
 

	
Assumed
 Business Names.
 Borrower has filed or recorded all documents or filings required by law relating
 to all assumed business names used by Borrower. Excluding the name of
 Borrower, the following is a complete list of all assumed business names
 under which Borrower does business: None.

	
 

	
 

	
 

	
Authorization. Borrower’s execution, delivery, and performance
 of this Agreement and all the Related Documents have been duly authorized by
 all necessary action by Borrower and do not conflict with, result in a
 violation of, or constitute a default under (1) any provision of (a)
 Borrower’s articles of incorporation or organization, or bylaws, or (b) any
 agreement or other instrument binding upon Borrower or (2) any law,
 governmental regulation, court decree, or order applicable to Borrower or to
 Borrower’s properties.

	
 

	
 

	
 

	
Properties. Except as contemplated by this Agreement or
 as previously disclosed in Borrower’s financial statements or in writing to
 Lender and as accepted by Lender, and except for property tax liens for taxes
 not presently due and payable, Borrower owns and has good title to all of
 Borrower’s properties free and clear of all liens and security interests, and
 has not executed any security documents or financing statements relating to
 such properties. All of Borrower’s properties are titled in Borrower’s legal
 name, and Borrower has not used or filed a financing statement under any
 other name for at least the last five (5) years.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, so long as this Agreement remains in effect, Borrower will:

	
 

	
 

	
 

	
Notices of
 Claims and Litigation.
 Promptly inform Lender in writing of (1) all material adverse changes in
 Borrower’s financial condition, and (2) all existing and all threatened
 litigation, claims, investigations, administrative proceedings’ or similar
 actions affecting Borrower or any Guarantor which could materially affect the
 financial condition of Borrower or the financial condition of any Guarantor.

	
 

	
 

	
 

	
Financial
 Records. Maintain
 its books and records in accordance with accounting principles acceptable to
 Lender, applied on a consistent basis, and permit Lender to examine and audit
 Borrower’s books and records at all reasonable times.

	
 

	
 

	
 

	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (Continued)

	
Page 2

	 

	
 

	
 

	
 

	
Financial
 Statements. Furnish
 Lender with such financial statements and other related information at such
 frequencies and in such detail as Lender
 may reasonably request.

	
 

	
 

	
 

	
Loan
 Proceeds. Use all
 Loan proceeds solely for Borrower’s business operations, unless specifically
 consented to the contrary by Lender in writing.

	
 

	
 

	
 

	
Taxes,
 Charges and Liens.
 Pay and discharge when due all of its indebtedness and obligations, including
 without limitation all assessments, taxes, governmental charges, levies and
 liens, of every kind and nature, imposed upon Borrower or its properties, income,
 or profits, prior to the date on which penalties would attach, and all lawful
 claims that, if unpaid, might become a lien or charge upon any of Borrower’s
 properties, income, or profits.

	
 

	
 

	
 

	
Performance. Perform and comply, in a timely manner,
 with all terms, conditions, and provisions set forth in this Agreement, in
 the Related Documents, and in all other instruments and agreements between
 Borrower and Lender. Borrower shall notify Lender immediately in writing of
 any default in connection with any agreement.

	
 

	
 

	
 

	
Operations. Maintain executive and management personnel
 with substantially the same qualifications and experience as the present
 executive and management personnel; provide written notice to Lender of any
 change in executive and management personnel; conduct its business affairs in
 a reasonable and prudent manner.

	
 

	
 

	
 

	
Compliance
 with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter
 in effect, of all governmental authorities applicable to the conduct of
 Borrower’s properties, businesses and operations, and to the use or occupancy
 of the Collateral, including without limitation, the Americans With
 Disabilities Act. Borrower may contest in good faith any such law, ordinance,
 or regulation and withhold compliance during any proceeding, including
 appropriate appeals, so long as Borrower has notified Lender in writing prior
 to doing so and so long as, in Lender’s sole opinion, Lender’s interests in
 the Collateral are not jeopardized. Lender may require Borrower to post
 adequate security or a surety bond, reasonably satisfactory to Lender, to
 protect Lender’s interest.

	
 

	
 

	
 

	
Inspection. Permit employees or agents of Lender at any
 reasonable time to inspect any and all Collateral for the Loan or Loans and
 Borrower’s other properties and to examine or audit Borrower’s books,
 accounts, and records and to make copies and memoranda of Borrower’s books,
 accounts, and records. If Borrower now or at any time hereafter maintains any
 records (including without limitation computer generated records and computer
 software programs for the generation of such records) in the possession of a
 third party, Borrower, upon request of Lender, shall notify such party to
 permit Lender free access to such records at all reasonable times and to
 provide Lender with copies of any records it may request, all at Borrower’s
 expense.

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

CESSATION OF ADVANCES. If Lender has made any commitment to make any
Loan to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan advances or to disburse Loan
proceeds if: (A) Borrower or any guarantor is in default under the terms of
this Agreement or any other agreement that Borrower or any guarantor has with
Lender; (B) Borrower or any guarantor dies, becomes incompetent or becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (C) there occurs a material adverse change in Borrower’s financial
condition, in the financial condition of any guarantor, or in the value of any
collateral securing any Loan; or (D) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor’s guaranty of the Loan or
any other loan with Lender; or (E) Lender in good faith deems itself insecure,
even though no Event of Default shall have occurred.

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

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

	
 

	
 

	
 

	
Payment
 Default. Borrower
 fails to make any payment when due under the Loan.

	
 

	
 

	
 

	
Other
 Default. Borrower
 fails to comply with any other term, obligation, covenant or condition
 contained in this Agreement or in any of the Related Documents. 

	
 

	
 

	
 

	
Default in
 Favor of Third Parties. Borrower defaults under any loan, extension of credit, security
 agreement, purchase or sales agreement, or any other agreement, in favor of
 any other creditor or person that may materially affect any of Borrower’s
 property or Borrower’s ability to repay the Loans or perform Borrower’s
 obligations under this Agreement or any related document.

	
 

	
 

	
 

	
False
 Statements. Any
 representation or statement made by Borrower to Lender is false in any
 material respect.

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Creditor
 or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by
 judicial proceeding, self-help, repossession or any other method, by any
 creditor of Borrower or by any governmental agency against any collateral
 securing the Loan.

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Change in
 Ownership. Any
 change in ownership of twenty-five percent (25%) or more of the common stock
 of Borrower.

	
 

	
 

	
 

	
Insecurity. Lender in good faith believes itself
 insecure.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement immediately will
terminate (including any obligation to make further Loan Advances or
disbursements), and, at Lender’s option, all Indebtedness immediately will
become due and payable, all without notice

	
 

	
 

	
 

	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (Continued)

	
Page 3

	 

of any kind to Borrower,
except that in the case of an Event of Default of the type described in the
“Insolvency” subsection above, such acceleration shall be automatic and not
optional. In addition, Lender shall have all the rights and remedies provided
in the Related Documents or available at law, in equity, or otherwise. Except
as may be prohibited by applicable law, all of Lender’s rights and remedies
shall be cumulative and may be exercised singularly or concurrently. Election
by Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an obligation
of Borrower or of any Grantor shall not affect Lender’s right to declare a
default and to exercise its rights and remedies.

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

ADDITIONAL SECURITY. Notwithstanding anything to the contrary in this or any related
agreement, to further secure the indebtedness and obligations of the Note and
related loan documents, Borrower pledges and grants to Lender a security
interest in Borrower’s accounts with Lender, including without limitation,
checking, savings, investment, general and special accounts, and accounts held
for safekeeping, held jointly with others, and accounts opened in the future,
excluding however all IRAs, Keogh accounts, and trust accounts to the extent a
security interest would be invalid or prohibited by law.

INSURANCE. Borrower shall assure that insurance is maintained pursuant to any
insurance requirements set forth in the Agreement To Provide Insurance and /or
other Related Documents, if applicable.

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

Governing Rules. Any arbitration proceeding will (i) be governed by the Federal
Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting
choice of law provision in any of the documents between the parties; and (ii)
be conducted by the AAA (American Arbitration Association), or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Arbitration proceedings hereunder
shall be conducted at a location mutually agreeable to the parties, or if they
cannot agree, then at a location selected by the AAA in the state of the applicable
substantive law primarily governing the Credit. Any party who fails or refuses
to submit to arbitration following a demand
by any other party shall bear all costs and expenses incurred by such other
party in compelling arbitration of any Dispute. Arbitration may be demanded at
any time, and may be compelled by summary proceedings in Court. The institution
and maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief. The arbitrator shall
award all costs and expenses of the arbitration proceeding. Nothing contained
herein shall be deemed to be a waiver by any party that is a Bank of the
protections afforded to it under 12 U.S.C. °91 or any similar applicable state
law.

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

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

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

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

State-Specific Provisions.

If California law governs the
Dispute, the following provision is included: 

	
 

	
 

	
 

	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (Continued)

	
Page 4

	 

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the
contrary, no Dispute shall be submitted to arbitration if the Dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration. If any such
Dispute is not submitted to arbitration, the Dispute shall, at the election of
any party, be referred to a referee in accordance with California Code of Civil
Procedure Section 638 et seq., and this general reference agreement is intended
to be specifically enforceable in accordance with said Section 638. A referee
with the qualifications required herein for arbitrators shall be selected
pursuant to the AAA’s selection procedures. Judgment upon the decision rendered
by a referee shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure Sections 644
and 645.

If Idaho law governs the Dispute, the following provision is
included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the
contrary, no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Idaho, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.

If Montana law governs the Dispute, the following provision is
included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the
contrary, no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Montana, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.

If Nevada law governs the Dispute, the following provision is
included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the
contrary, no dispute shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of Nevada, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable.

If Utah law governs the Dispute, the following provision is
included:

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the
contrary, no Dispute shall be submitted to arbitration if the Dispute concerns
indebtedness secured directly or indirectly, in whole or in part, by any real
property unless the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration. If any such
Dispute is not submitted to arbitration, the Dispute shall, at the election of
any party, be referred to a master in accordance with Utah Rule of Civil
Procedure 53, and this general reference agreement is intended to be
specifically enforceable. A master with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA’s selection procedures.
Judgment upon the decision rendered by a master shall be entered in the court
in which such proceeding was commenced in accordance with Utah Rule of Civil
Procedure 53(e).

LOAN AGREEMENT PROVISION. The following covenants apply to the loan
evidenced by the Note and to all other loans or other credit accommodations
from Lender to Borrower now existing or subsequently arising under any future
confirmation letter, agreement or promissory note, excluding any loans or
financial accommodations which are not serviced by the Wells Fargo Business
Banking Group, or its successors (“Excluded Loans”). These covenants supersede
and replace any prior financial reporting and condition covenants and shall
survive the payoff of the Loan, but shall not affect any Excluded Loans or
covenants which by their nature relate only to a specific credit transaction.

COVENANTS FOR. Image Sensing Systems, Inc.

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

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

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

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

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

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

	
 

	
 

	
 

	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (Continued)

	
Page 5

	 

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

	
 

	
 

	
 

	
 

	
Percentage 

	
 

	
Type of Investment Property 

	
 

	 

	
 

	 

	
 

	
90%

	
 

	
U.S. Government Bills,
 Notes, Bonds

	
90%

	
 

	
U.S. Government Sponsored
 Agency Securities

	
85%

	
 

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

	
80%

	
 

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

	
90%

	
 

	
A1 or P1 Graded Commercial
 Paper

	
70%

	
 

	
A2 or P2 Graded Commercial
 Paper

	
75%

	
 

	
New York Stock Exchange
 stock

	
75%

	
 

	
NASDAQ, AMEX, and Other
 Regional Exchanges stock

	
  0%

	
 

	
Rule 144 Restricted or
 Control Securities

	
95%

	
 

	
Money Market Funds

	
90%

	
 

	
Short Term Taxable or Tax
 Exempt Bond Funds

	
85%

	
 

	
Intermediate Term Taxable
 or Tax Exempt Bond Funds

	
80%

	
 

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

	
75%

	
 

	
Long Term Corporate,
 Municipal, Single State Bond Funds 

	
75%

	
 

	
Balanced Stock/Bond Funds

	
70%

	
 

	
Domestic Stock Funds

	
50%

	
 

	
International/Global Funds

	
50%

	
 

	
Sector Funds

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

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

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

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

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

	
 

	
 

	
 

	
Advance. The word “Advance” means a disbursement of
 Loan funds made, or to be made, to Borrower or on Borrower’s behalf on a line
 of credit or multiple advance basis under the terms and conditions of this
 Agreement.

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Borrower. The word “Borrower” means Image Sensing
 Systems, Inc. and includes all co-signers and co-makers signing the Note and
 all their successors and assigns.

	
 

	
 

	
 

	
Collateral. The word “Collateral” means all property
 and assets granted as collateral security for a Loan, whether real or
 personal property, whether granted directly or indirectly, whether granted
 now or in the future, and whether granted in the form of a security interest,
 mortgage, collateral mortgage, deed of trust, assignment, pledge, crop
 pledge, chattel mortgage, collateral chattel mortgage, chattel trust,
 factor’s lien, equipment trust, conditional sale, trust receipt, lien,
 charge, lien or title retention contract, lease or consignment intended as a
 security device, or any other security or lien interest whatsoever, whether
 created by law, contract, or otherwise.

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Grantor. The word “Grantor” means each and all of
 the persons or entities granting a Security Interest in any Collateral for
 the Loan, including without limitation all Borrowers granting such a Security
 Interest.

	
 

	
 

	
 

	
Guarantor. The word “Guarantor” means any guarantor,
 surety, or accommodation party of any or all of the Loan.

	
 

	
 

	
 

	
Guaranty. The word “Guaranty” means the guaranty from
 Guarantor to Lender, including without limitation a guaranty of all or part
 of the Note.

	
 

	
 

	
 

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

	
 

	
 

	
 

	
Lender. The word “Lender” means Wells Fargo Bank,
 National Association, its successors and assigns.

	
 

	
 

	
 

	
Loan. The word “Loan” means any and all loans and
 financial accommodations from Lender to Borrower whether now or hereafter
 existing, and however evidenced, including without limitation those loans and
 financial accommodations described herein or described on any exhibit or
 schedule attached to this Agreement from time to time.

	
 

	
 

	
 

	
Note. The word “Note” means the Note executed by
 Image Sensing Systems, Inc. in the principal amount of $8,000,000.00 dated
 December 4, 2007, together with all renewals of, extensions of, modifications
 of, refinancings of, consolidations of, and substitutions for the note or
 credit agreement.

	
 

	
 

	
 

	
Related
 Documents. The words
 “Related Documents” mean all promissory notes, credit agreements, loan
 agreements, environmental

	
 

	
 

	
 

	
Loan No:
 3757618353

	
BUSINESS LOAN AGREEMENT

 (Continued)

	
Page 6

	 

	
 

	
 

	
 

	
agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and
all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the
Loan.

	
 

	
 

	
 

	
Security Agreement. The words “Security Agreement” mean and include without limitation any
agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.

	
 

	
 

	
 

	
Security Interest. The words “Security Interest” mean, without limitation, any and all types of
collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security
deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment
trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever whether created by law, contract, or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS
TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED DECEMBER 4, 2007.

BORROWER:

	
 

	
 

	
 

	
 

	
 

	
 

	
IMAGE SENSING SYSTEMS, INC.

	
 

	
 

	
 

	
 

	
 

	
By:

	 	
 

	
By:
	
/s/ Greg Smith
	
 

	
 

	
Kenneth R. Aubrey, President and CEO of Image
 Sensing Systems, Inc.

	
 

	
 

	
Gregory R. L. Smith, CFO of Image Sensing
 Systems, Inc.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
LENDER:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
WELLS FARGO BANK, NATIONAL ASSOCIATION

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:
	
/s/ Christine K. Warner
	
 

	
 

	
 

	
 

	
 

	
Authorized
 Signer

	
 

	
 

	
 

	
 

	
 

	 

	
LASER PRO Lending, Ver. 5.38.10.001 Copr. Harland Financial Solutions, Inc. 1997, 2007. All Rights Reserved. MN
X:\LPROD\CFI\LPL\C40:FC TR-48696 PR-689 

RIDER TO
BUSINESS LOAN AGREEMENT

          This Rider is made this 4th day of December 2007, by
and between Image Sensing Systems, Inc. (the “Borrower”) and Wells Fargo Bank, National Association (the
“Lender”).

          Reference is hereby made to that certain Business Loan
Agreement dated of even date hereof made between the Borrower and the Lender. Capitalized terms not otherwise defined herein have
the same meaning as set forth in the above described Business Loan Agreement. This Rider shall be read consecutively with, and
deemed incorporated into such Business Loan Agreement.

          NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, each paid to the other, it is agreed that the Business Loan Agreement is amended by the
addition of the following:

1.       The DEFAULT section of the Business Loan Agreement is
amended by the deleting therefrom the Change in Ownership clause as provided therein and the following substituted
therefor:  

“Change in Ownership. Any change in ownership of forty
 percent (40%) or more of the
common stock of Borrower.”

          Except as modified by this Rider, the Business Loan
Agreement remains unchanged and in full force and effect.

IN WITNESS WHEREOF, the Borrower and the Lender have executed this Rider as of the date and year first above
written.

	
 

	
 

	
 

	
 

	
 

	
 

	
“BORROWER”

	
 

	
“LENDER”

	
 

	
 

	
 

	
 

	
 

	
IMAGE SENSING SYSTEMS, INC.

	
 

	
WELLS FARGO BANK,
 NATIONAL ASSOCIATION

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
 
	
 

	
By:

	
/s/ Christine K. Warner

	
 

	
Kenneth R. Aubrey

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Its:

	
President and Chief Executive Officer

	
 

	
Its:

	
VP

	
 

	
 

	 

	
 

	
 

	 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
/s/ Greg Smith
	
 

	
 

	
 

	
 

	
 

	
Gregory R. L. Smith
	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Its:

	
Chief Financial Officer

	
 

	
 

	
 

	
 

	
 

	 

	
 

	
 

	
 

	
 

Rider - Mgl3l3vl(MK)

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