CREDIT AGREEMENT

THIS AGREEMENT is entered into as of May 27, 2004, by and between ITERIS, INC., a Delaware corporation (?Borrower?), and WELLS FARGO BANK, NATIONAL ASSOCIATION (?Bank?).

RECITALS

Borrower has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows;

ARTICLE I
CREDIT TERMS

SECTION 1.1                          LINE OF CREDIT.

(a)                                  Line of Credit.  Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including August 1, 2005, not to exceed at any time the aggregate principal amount of Five Million and 00/100 Dollars ($5,000,000.00) (?Line of Credit?), the proceeds of which shall be used for working capital requirements.  Borrowers obligation to repay advances under the Line of Credit shall be evidenced by a promissory note dated as of May 27, 2004 (?Line of Credit Note?), all terms of which are incorporated herein by this reference.

(b)                                 Limitation on Borrowings.  Outstanding borrowings under the Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed an aggregate of (i) eighty percent 80% of Borrower?s eligible accounts receivable (Non-Gov?t/Non-Consulting) (ii) Forty percent (40%) of Borrower?s eligible accounts receivable (Gov?t/Consulting) provided that outstanding borrowings against such accounts receivable shall not exceed Seven Hundred Fifty Thousand and 00/100 Dollars ($750,000.00), and (iii) fifty percent (50%) of the value of Borrowers eligible inventory, (exclusive of work in process and inventory which is obsolete, unsaleable or damaged), with value defined as the lower of cost or market value, provided however, that outstanding borrowing against inventory shall not at any time exceed an aggregate of One Million and 00/100 Dollars ($1,000,000).  All of the foregoing shall be determined by Bank upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Bank may from time to time require.  Borrower acknowledges that said borrowing base was established by Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower?s gross sales for said period.  If such dilution of Borrower?s accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower?s gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Bank reasonably believes may affect payment of any portion of Borrower?s accounts, Bank, in its sole discretion, may reduce the foregoing advance rate against eligible accounts receivable to a percentage appropriate to reflect such additional dilution and/or establish additional reserves against Borrowers eligible accounts receivable.

As used herein, ?eligible accounts receivable? shall consist solely of trade accounts created in the ordinary course of Borrower?s business, upon which Borrower?s right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Bank has a perfected security interest of first priority, and shall not include:

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