DEBENTURE REDEMPTIONAGREEMENT

2.             Representations and Warranties.  Potomac hereby represents, warrants and acknowledges as follows:

2.1.          As of the date hereof, the total outstanding under the Potomac Debentures (principal and accrued but unpaid interest) is One Million One Hundred Seven Thousand Four Hundred Thirteen Dollars and Seventy Cents ($1,107,413.70).

2.2.          Potomac is the sole record and beneficial owner of the Potomac Debentures.  Upon payment of the amounts set forth in Section 1.1, the Company will acquire good and valid title to the Potomac Debentures, free and clear of all liens, security interests, pledges, claims and encumbrances of every kind, nature and description incurred or created by Potomac.

2.3.          Potomac has the full right and power to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby.  The execution, delivery and performance of this Agreement by Potomac, and the consummation of the transactions contemplated hereby, (i) have been duly authorized by all requisite organizational action of Potomac and (ii) do not and will not conflict with any law applicable to Potomac or any of its properties or assets or any provisions of Potomac’s organizational documents or contracts, agreements or other instrument to which Potomac is a party or by which any of its properties or assets may be bound..

2.4.          Potomac is an experienced and sophisticated investor, having such knowledge and experience in business and financial matters and investing as to be able to protect its own interests and assess the risks and merits of the Redemption.  Potomac has independently determined the advisability of entering into this Agreement and is entering into this Agreement of its own volition, and is not relying on any representations or statements of the Company or its officers, directors, shareholders, employees, agents, attorneys and representatives except for those representations and statements expressly set forth herein.

2.5.          Potomac has had the opportunity to consult with counsel of its choice regarding the meaning and legal effect of this Agreement, and regarding the advisability of making the agreements provided for herein, and fully understands the same.

3.             Release.  The following release shall be effective upon the Company’s payment of the amounts set forth in Section 1.1.

3.1.          Other than the obligations, covenants, representations and warranties provided for in this Agreement, Potomac, for itself and its predecessors, successors, agents and assigns (individually and collectively, the “Potomac Releasing Parties”), hereby waives, releases, and forever discharges Iteris and its predecessors, successors, assigns, officers, directors, shareholders, employees, agents, attorneys and representatives, past and present, (collectively, the “Iteris Released Parties”) of and from any and all rights, claims, debts, liabilities, demands, obligations, promises, damages, causes of action and claims for relief of any kind, manner, nature and description, known or unknown, which any of the Potomac Releasing Parties have, may have had, might have asserted, may now have or assert, or may hereafter have or assert against the Iteris Released Parties, or any of them, related to or arising under the Redemption and Potomac’s purchase and ownership of the Potomac Debentures.  Potomac represents and warrants that it has not filed any claims, charges, complaints or actions against the Company and has not assigned or transferred to any person or entity any of the claims Potomac is releasing in this Agreement.