-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NmDFo/GEkEVrb7fAMvXslLx9wq0aK1REQlMnguWNzuJoEto8pnXK1dUSKmfEZuYF 7ojxDPwnIhSzPr+sdolQrQ== 0001019687-06-000471.txt : 20060301 0001019687-06-000471.hdr.sgml : 20060301 20060301171306 ACCESSION NUMBER: 0001019687-06-000471 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060224 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060301 DATE AS OF CHANGE: 20060301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Emrise CORP CENTRAL INDEX KEY: 0000854852 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 770226211 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10346 FILM NUMBER: 06656682 BUSINESS ADDRESS: STREET 1: 9485 HAVEN AVENUE STREET 2: STE 100 CITY: RANCHO CUCAMONGA STATE: CA ZIP: 91730 BUSINESS PHONE: 9099879220 MAIL ADDRESS: STREET 1: 9485 HAVEN AVENUE STREET 2: STE 100 CITY: RANCHO CUCAMONGA STATE: CA ZIP: 91730 FORMER COMPANY: FORMER CONFORMED NAME: MICROTEL INTERNATIONAL INC DATE OF NAME CHANGE: 19951117 FORMER COMPANY: FORMER CONFORMED NAME: CXR CORP DATE OF NAME CHANGE: 19920703 8-K 1 emrise_8k-030106.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) FEBRUARY 24, 2006 EMRISE CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 77-0226211 -------- ---------- (State or other jurisdiction (IRS Employer of incorporation) Identification No.) 001-10346 --------- (Commission File Number) 9485 HAVEN AVENUE, SUITE 100, RANCHO CUCAMONGA, CALIFORNIA 91730 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (909) 987-9220 NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (SEE General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. EXECUTIVE EMPLOYMENT AGREEMENT DATED EFFECTIVE AS OF JANUARY 1, 2006 BETWEEN EMRISE CORPORATION AND CARMINE T. OLIVA On February 24, 2006, we entered into an employment agreement with Carmine T. Oliva, our Chairman of the Board, President and Chief Executive Officer. The agreement is effective as of January 1, 2006 and ends on January 1, 2011. This agreement provides for an initial base salary during the first 12-month period that the agreement is in effect of $350,000 per year and states that Mr. Oliva is eligible to receive merit or promotional increases and bonuses at the discretion of our compensation committee and to participate in other benefit and incentive programs we may offer. If we terminate Mr. Oliva's employment "for due cause" or due to Mr. Oliva's breach of the agreement by refusing to continue his employment, our obligation to pay any further compensation, severance allowance, or other amounts payable under the agreement terminates on the date of termination, other than (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by us for Mr. Oliva that are earned and vested by the date of termination; (ii) Mr. Oliva's pro rata annual salary through the date of termination; (iii) any stock options which have vested as of the date of termination pursuant to the terms of the agreement granting the options; and (iv) accrued vacation as required by California law. If we terminate Mr. Oliva's employment without due cause, we must provide Mr. Oliva with a written notice of termination and his employment shall terminate immediately upon notice. Mr. Oliva may terminate the agreement at any time for good reason within 30 days after Mr. Oliva learns of the event or condition constituting "good reason." If termination without due cause by us or for good reason by Mr. Oliva occurs prior to the expiration of the agreement on January 1, 2011, Mr. Oliva will be entitled to (i) his salary in effect as of the date of termination through the end of the month during which the termination occurs plus credit for any vacation earned but not taken; (ii) a severance payment in an amount equal to three times his then current annual salary, net of all then applicable federal, state and local taxes; (iii) a prorated incentive bonus if any, for the fiscal year during which termination occurs; and (iv) all medical and life insurance benefits to which Mr. Oliva was entitled immediately prior to the date of termination (or at the election of Mr. Oliva in the event of a change in control, immediately prior to the date of the change in control) for a period of three years or the date or dates that Mr. Oliva's continued participation in our medical and/or life insurance plans is not possible under the plans, whichever is earlier. If our medical and/or life insurance plans do not allow Mr. Oliva's continued participation in the plan or plans, then we will pay to Mr. Oliva, in monthly installments, the monthly premium or premiums which had been payable by us covering the period stated in the foregoing subsection (iv). If Mr. Oliva is incapacitated by accident, sickness or otherwise so as to render him mentally or physically incapable of performing the services required under the agreement for a period of 240 consecutive days, and the incapacity is confirmed by the written opinion of two practicing medical doctors, we may terminate Mr. Oliva's employment under the agreement upon giving Mr. Oliva or his legal representative written notice at least 30 days prior to the termination date. In the event of Mr. Oliva's death, the agreement will terminate immediately. If Mr. Oliva's employment is terminated due to incapacity or by death, Mr. Oliva or his estate or legal representative will be entitled to receive (i) those benefits that are provided by retirement and benefits plans and programs specifically adopted and approved by us for Mr. Oliva that are earned and vested at the date of termination, (ii) a prorated incentive bonus for the fiscal year in which incapacity or death occurs, and (iii) Mr. Oliva's annual salary then in effect for one year following the date of termination, offset, however, by any payments received by Mr. Oliva as a result of any disability insurance maintained by us for Mr. Oliva's benefit. 2 The agreement contains non-competition provisions that prohibit Mr. Oliva from engaging or participating in a competitive business or soliciting our customer or employees during his employment with us and for two years afterward. The agreement also contains provisions that restrict disclosure by Mr. Oliva of our confidential information and assign ownership to us of inventions created by Mr. Oliva in connection with his employment. The term "for due cause" is defined in the agreement as (i) any intentional misapplication by Mr. Oliva of our funds or other material assets, or any other act of dishonesty injurious to EMRISE Corporation committed by Mr. Oliva; or (ii) Mr. Oliva's conviction of a felony or a crime involving moral turpitude; or (iii) Mr. Oliva's use or possession of any controlled substance or chronic abuse of alcoholic beverages, which use or possession the board reasonably determines renders Mr. Oliva unfit to serve in his capacity as a senior executive of EMRISE Corporation; or (iv) Mr. Oliva's breach, nonperformance or nonobservance of any of the terms of the agreement, including but not limited to Mr. Oliva's failure to adequately perform his duties or comply with the reasonable directions of the board. Notwithstanding anything in the foregoing subsections (iii) or (iv) to the contrary, we will not terminate Mr. Oliva unless the Board of Directors first provides Mr. Oliva with a written memorandum describing in detail how his performance under the agreement is not satisfactory and Mr. Oliva is given a reasonable period of time (not less than 90 days) to remedy the unsatisfactory performance related by the board to Mr. Oliva in that memorandum. A determination of whether Mr. Oliva has satisfactorily remedied the unsatisfactory performance shall be promptly made by a majority of the disinterested directors of the board at the end of the period provided to Mr. Oliva for remedy and their determination shall be final. The term "for good reason" is defined in the agreement as any of the following which occur without Mr. Oliva's written consent: (i) the assignment of duties by the board which is inconsistent with Mr. Oliva's position, duties, responsibilities or status with EMRISE Corporation; a substantial change in Mr. Oliva's title or offices; any removal of Mr. Oliva from or any failure to reelect Mr. Oliva to any of his positions as an officer, except in connection with the termination of his employment for disability, retirement, death or by Mr. Oliva for good reason; or (ii) a purported reduction by us in Mr. Oliva's base salary to an amount less than the greater of (a) the base salary as in effect on the date of the agreement or (b) 10% below the base salary in effect at the time of the purported reduction; or (iii) our failure to continue in effect any benefits required under the agreement; or (iv) our failure to obtain the assumption of the agreement by any successor or assign of EMRISE Corporation; or (v) Mr. Oliva failure to comply with any material provision of the agreement which has not been cured within 30 days after notice of noncompliance has been given by Mr. Oliva to EMRISE Corporation or if the failure is not capable of being cured in that time, a cure shall not have been diligently initiated by us within the 30 day period; or (vi) a material reduction in the highest level of support services and staff, office space and accouterments available to Mr. Oliva during the term of the agreement and that which is necessary to perform any additional duties assigned to Mr. Oliva thereafter, which reduction is not generally effective for all officers employed by us; or (vii) if we avail ourselves of, or we are subjected by any third party to, a proceeding in bankruptcy in which we are the named debtor, an assignment by us for the benefit of our creditors, the appointment of a receiver for EMRISE Corporation, or any other proceeding involving insolvency or the protection of or from creditors and the proceeding has not been discharged or terminated within 90 days. 3 As used in the agreement, a "change in control" is deemed to have occurred if (i) there shall be consummated any consolidation or merger of EMRISE Corporation in which we are not the continuing or surviving corporation or pursuant to which all or substantially all of the shares of our common stock would be converted into cash, securities or other property, other than a merger of EMRISE Corporation in which the holders of our common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (ii) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of EMRISE Corporation; (iii) the stockholders of EMRISE Corporation approve any plan or proposal for the liquidation or dissolution of EMRISE Corporation; (iv) any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than "persons" who are stockholders of EMRISE Corporation on the date of the employment agreement, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of EMRISE Corporation's outstanding common stock after the date hereof; (v) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire board shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by EMRISE Corporation's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; or (vi) there shall be any change of control of a nature required to be reported in response to Item 6 (e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act or any successor regulation of substantially similar import, regardless of whether we are subject to such reporting requirement. EXECUTIVE EMPLOYMENT AGREEMENT DATED EFFECTIVE AS OF JANUARY 1, 2006 BETWEEN EMRISE CORPORATION AND RANDOLPH D. FOOTE On February 24, 2006, we entered into an employment agreement with Randolph D. Foote, our Senior Vice President, Chief Financial Officer and Secretary. The agreement is effective as of January 1, 2006 and ends on January 1, 2008. This agreement provides for an initial base salary during the first 12-month period that the agreement is in effect of $175,000 per year and states that Mr. Foote is eligible to receive merit or promotional increases and bonuses at the discretion of our compensation committee and to participate in other benefit and incentive programs we may offer. If we terminate Mr. Foote's employment "for due cause" or due to Mr. Foote's breach of the agreement by refusing to continue his employment, our obligation to pay any further compensation, severance allowance, or other amounts payable under the agreement terminates on the date of termination, other than (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by us for Mr. Foote that are earned and vested by the date of termination; (ii) Mr. Foote's pro rata annual salary through the date of termination; (iii) any stock options which have vested as of the date of termination pursuant to the terms of the agreement granting the options; and (iv) accrued vacation as required by California law. If we terminate Mr. Foote's employment without due cause, we must provide Mr. Foote with a written notice of termination and his employment shall terminate immediately upon notice. Mr. Foote may terminate the agreement at any time for good reason within 30 days after Mr. Foote learns of the event or condition constituting "good reason." If termination without due cause by us or for good reason by Mr. Foote occurs prior to the expiration of the agreement on January 1, 2008, Mr. Foote will be entitled to (i) his salary in effect as of the date of termination through the end of the month during which the termination occurs plus credit for any vacation earned but not taken; (ii) a severance payment in an amount equal to one and one-half times his then current annual salary, net of all then applicable federal, state and local taxes; (iii) a prorated incentive bonus if any, for the fiscal year during which termination occurs; and (iv) all medical and life insurance benefits to which Mr. Foote was entitled immediately prior to the date of termination (or at the election of Mr. Foote in the event of a change in control, immediately prior to the date of the change in control) for a period of 18 months or the date or dates that Mr. Foote's continued participation in our medical and/or life insurance plans is not possible under the plans, whichever is earlier. If our medical and/or life insurance plans do not allow Mr. Foote's continued participation in the plan or plans, then we will pay to Mr. Foote, in monthly installments, the monthly premium or premiums which had been payable by us covering the period stated in the foregoing subsection (iv). 4 If Mr. Foote is incapacitated by accident, sickness or otherwise so as to render him mentally or physically incapable of performing the services required under the agreement for a period of 180 consecutive days, and the incapacity is confirmed by the written opinion of two practicing medical doctors, we may terminate Mr. Foote's employment under the agreement upon giving Mr. Foote or his legal representative written notice at least 30 days prior to the termination date. In the event of Mr. Foote's death, the agreement will terminate immediately. If Mr. Foote's employment is terminated due to incapacity or by death, Mr. Foote or his estate or legal representative will be entitled to receive (i) those benefits that are provided by retirement and benefits plans and programs specifically adopted and approved by us for Mr. Foote that are earned and vested at the date of termination, (ii) a prorated incentive bonus for the fiscal year in which incapacity or death occurs, and (iii) Mr. Foote's annual salary then in effect for one year following the date of termination, offset, however, by any payments received by Mr. Foote as a result of any disability insurance maintained by us for Mr. Foote's benefit. The agreement contains non-competition provisions that prohibit Mr. Foote from engaging or participating in a competitive business or soliciting our customer or employees during his employment with us and for two years afterward. The agreement also contains provisions that restrict disclosure by Mr. Foote of our confidential information and assign ownership to us of inventions created by Mr. Foote in connection with his employment. The terms "for due cause," "good reason" and "change in control" have the same meanings as in Mr. Oliva's employment agreement described above. EXECUTIVE EMPLOYMENT AGREEMENT DATED EFFECTIVE AS OF JANUARY 1, 2006 BETWEEN EMRISE CORPORATION AND GRAHAM JEFFERIES On February 24, 2006, we entered into an employment agreement with Graham Jefferies, our Executive Vice President and Chief Operating Officer. The agreement is effective as of January 1, 2006 and ends on January 1, 2009. This agreement provides for an initial base salary of (pound)152,800 per year during the first 12-month period that the agreement is in effect to be paid by our subsidiary, EMRISE Electronics, Ltd., and states that Mr. Jefferies is eligible to receive merit or promotional increases and bonuses at the discretion of our compensation committee and to participate in other benefit and incentive programs we may offer. If we terminate Mr. Jefferies' employment "for due cause" or due to Mr. Jefferies' breach of the agreement by refusing to continue his employment, our obligation to pay any further compensation, severance allowance, or other amounts payable under the agreement terminates on the date of termination, other than (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by us for Mr. Jefferies that are earned and vested by the date of termination; (ii) Mr. Jefferies' pro rata annual salary through the date of termination; (iii) any stock options which have vested as of the date of termination pursuant to the terms of the agreement granting the options; and (iv) accrued vacation as required by applicable law. 5 If we terminate Mr. Jefferies' employment without due cause, we must provide Mr. Jefferies with a written notice of termination and his employment shall terminate immediately upon notice. Mr. Jefferies may terminate the agreement at any time for good reason within 30 days after Mr. Jefferies learns of the event or condition constituting "good reason." If termination without due cause by us or for good reason by Mr. Jefferies occurs prior to the expiration of the agreement on January 1, 2009, Mr. Jefferies will be entitled to (i) his salary in effect as of the date of termination through the end of the month during which the termination occurs plus credit for any vacation earned but not taken; (ii) a severance payment in an amount equal to two times his then current annual salary, net of all then applicable taxes; (iii) a prorated incentive bonus if any, for the fiscal year during which termination occurs; and (iv) all medical and life insurance benefits to which Mr. Jefferies was entitled immediately prior to the date of termination (or at the election of Mr. Jefferies in the event of a change in control, immediately prior to the date of the change in control) for a period of two years or the date or dates that Mr. Jefferies' continued participation in our medical and/or life insurance plans is not possible under the plans, whichever is earlier. If our medical and/or life insurance plans do not allow Mr. Jefferies' continued participation in the plan or plans, then we will pay to Mr. Jefferies, in monthly installments, the monthly premium or premiums which had been payable by us covering the period stated in the foregoing subsection (iv). If Mr. Jefferies is incapacitated by accident, sickness or otherwise so as to render him mentally or physically incapable of performing the services required under the agreement for a period of 180 consecutive days, the agreement will terminate; provided, however, that Mr. Jefferies will remain an employee of EMRISE Electronics, Ltd. and shall be entitled to remuneration in an amount equal to the amount paid under EMRISE Electronics, Ltd.'s permanent health scheme, subject to the paragraph immediately below. In the event of Mr. Jefferies' death, the agreement will terminate immediately. If Mr. Jefferies' employment is terminated due to incapacity or by death, Mr. Jefferies or his estate or legal representative will be entitled to receive (i) those benefits that are provided by retirement and benefits plans and programs specifically adopted and approved by us for Mr. Jefferies that are earned and vested at the date of termination, (ii) a prorated incentive bonus for the fiscal year in which incapacity or death occurs, and (iii) Mr. Jefferies' annual salary then in effect for one year following the date of termination, offset, however, by any payments received by Mr. Jefferies as a result of any permanent insurance scheme maintained by us for Mr. Jefferies' benefit. The agreement contains non-competition provisions that prohibit Mr. Jefferies from engaging or participating in a competitive business or soliciting our customer or employees during his employment with us and for two years afterward. The agreement also contains provisions that restrict disclosure by Mr. Jefferies of our confidential information and assign ownership to us of inventions created by Mr. Jefferies in connection with his employment. The terms "for due cause," "good reason" and "change in control" have the same meanings as in Mr. Oliva's employment agreement described above. ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS. Effective March 1, 2006, our Board of Directors, by action taken by unanimous written consent, appointed Richard E. Mahmarian to serve as a Class III director. Mr. Mahmarian's term as a Class III director will expire at our 2008 annual meeting of stockholders or until he is succeeded by another qualified director who has been duly elected. The Board of Directors also appointed Mr. Mahmarian as a member of our audit committee effective as of March 1, 2006. There are no arrangements or understandings between Mr. Mahmarian and any other persons pursuant to which Mr. Mahmarian was appointed as a director and as a member of the audit committee. 6 ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Businesses Acquired. Not applicable. (b) Pro Forma Financial Information. Not applicable. (c) Shell Company Transactions. Not applicable. (d) Exhibits. Number Description ------ ----------- 10.1 Executive Employment Agreement dated February 24, 2006 by and between the Company and Carmine T. Oliva 10.2 Executive Employment Agreement dated February 24, 2006 by and between the Company and Randolph D. Foote 10.3 Executive Employment Agreement dated February 24, 2006 by and between the Company and Graham Jefferies 7 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: March 1, 2006 EMRISE CORPORATION By: /s/ RANDOLPH D. FOOTE ------------------------------------------ Randolph D. Foote, Chief Financial Officer 8 EXHIBITS FILED WITH THIS REPORT Number Description ------ ----------- 10.1 Executive Employment Agreement dated February 24, 2006 by and between the Company and Carmine T. Oliva 10.2 Executive Employment Agreement dated February 24, 2006 by and between the Company and Randolph D. Foote 10.3 Executive Employment Agreement dated February 24, 2006 by and between the Company and Graham Jefferies 9 EX-10.1 2 emrise_ex1001.txt EMPLOYMENT AGR - OLIVA EXHIBIT 10.1 EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated effective as of January 1, 2006 ("Effective Date"), is made and entered into by and between EMRISE CORPORATION, a Delaware corporation ("Employer"), and CARMINE T. OLIVA ("Executive"). R E C I T A L S Employer desires that the Executive enter into an employment relationship with Employer in order to provide the necessary leadership and senior management skills that are important to the success of Employer. Employer believes that obtaining the Executive's services as an employee of Employer and the benefits of his business experience are of material importance to Employer and Employer's stockholders. A G R E E M E N T NOW, THEREFORE, in consideration of Executive's employment by Employer and the mutual promises and covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, Employer and Executive intend by this Agreement to specify the terms and conditions of Executive's employment relationship with Employer. 1. GENERAL DUTIES OF EMPLOYER AND EXECUTIVE. 1.1 Employer agrees to employ Executive and Executive agrees to accept employment by Employer and to serve Employer in an executive capacity upon the terms and conditions set forth herein. Employer hereby employs Executive as the President and Chief Executive Officer of Employer as of the Effective Date, reporting to the Board of Directors of Employer (the "Board"). Executive will also serve as the Chairman of the Board. Executive's duties and responsibilities shall be those normally assumed by the President and Chief Executive Officer of a publicly-owned company similarly situated to Employer, as well as such other or additional duties, as may from time-to-time be assigned to Executive by the Board. Such other or additional duties shall be consistent with the senior executive functions set forth above. 1.2 While employed hereunder, Executive shall use his best efforts to obey the lawful directions of the Board. Executive shall also use his best efforts to promote the interests of Employer and to maintain and to promote the reputation of Employer. While employed hereunder, Executive shall devote his full business time, efforts, skills and attention to the affairs of Employer and faithfully perform his duties and responsibilities hereunder. 1.3 While this Agreement is in effect, Executive may from time to time engage in any activities that do not compete directly with Employer, provided that such activities do not interfere with his performance of his duties. Executive shall be permitted to (i) invest his personal assets as a passive investor in such form or manner as Executive may choose in his discretion, (ii) participate in various charitable efforts, and (iii) serve as a member of the Board of Directors of other corporations which are not competitors of Employer. 2. COMPENSATION AND BENEFITS. 2.1 As compensation for his services to Employer, Employer shall pay to Executive an annual base salary of $350,000 during the first 12-month period that this Agreement is in effect, payable in equal semimonthly payments in accordance with the Employer's regular payroll policy for salaried employees (the "Salary"). Thereafter, the Compensation Committee of the Board (the "Compensation Committee") shall perform an annual review of the Executive's Salary based on Executive's performance of his duties and Employer's other compensation policies. The Compensation Committee may, at its sole discretion, increase (but not decrease) the Salary at any time, and from time to time, after the first 12-month period that this Agreement is in effect. In addition, Executive shall be eligible for an incentive bonus ("Incentive Bonus"), payable no later than the date Employer's Form 10-K for the previous fiscal year is filed with the Securities and Exchange Commission based on criteria determined by the Compensation Committee, at its sole discretion. 2.2 Upon Executive's furnishing to Employer customary and reasonable documentary support (such as receipts or paid bills) evidencing costs and expenses incurred by him in the performance of his services and duties hereunder (including, without limitation, travel and entertainment, cellular telephone, computer and other home office expenses) and containing sufficient information to establish the amount, date, place and essential character of the expenditure, Executive shall be reimbursed for such costs and expenses in accordance with Employer's normal expense reimbursement policy. 2.3 Executive shall be entitled to participate in the medical (including hospitalization), dental, life and disability insurance plans, to the extent offered by Employer, and in amounts consistent with the Employer's policy, for other senior executive officers of Employer, with premiums for all such insurance for Executive and his dependents to be paid by Employer, subject to customary employee contributions. In addition, Employer shall purchase and maintain in effect a life insurance policy on Executive's life, in the amount of $1,000,000, payable to Executive's estate in the event of his death during the term of this Agreement and any renewals of this Agreement. 2.4 Executive shall have the right to participate in any additional compensation, benefit, pension, stock option, stock purchase, 401(k) or other plan or arrangement of Employer now or hereafter existing for the benefit of other senior executive officers of Employer. 2.5 Executive shall be entitled to vacation (but in no event less than four weeks per year), holiday and other paid or unpaid leaves of absence consistent with Employer's normal policies for other senior executive officers of Employer or as otherwise approved by the Board. Executive shall be entitled to accrue vacation time for one year. If he does not take the accrued vacation during the next year, he shall be paid for the unused vacation at his Salary rate then in effect. 2.6 Executive shall be provided a monthly car allowance in the amount of at least $750.00. -2- 2.7 Executive shall be entitled to the non-exclusive use of Employer's corporate residence. 2.8 Employer shall purchase and maintain in effect a directors' and officers' liability insurance policy with a minimum limit of liability of $5,000,000 and shall enter into an indemnification agreement with Executive upon terms and conditions mutually acceptable to Employer and Executive. 2.9 Employer agrees, by action of its Board, to nominate Executive as a Class III member of the Board and seek stockholder approval of such nomination at the 2008 annual meeting of the stockholders of Employer. 3. PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Executive shall use his best efforts to preserve the business and organization of Employer and to preserve the business relations of Employer. So long as the Executive is employed by Employer, Executive shall observe and fulfill proper standards of fiduciary responsibility attendant upon his service and office. 4. TERM. The term of this Agreement shall commence on the Effective Date and shall end on the fifth anniversary of the Effective Date, subject to earlier termination as set forth in Section 5. 5. TERMINATION OTHER THAN BY EXPIRATION OF THE TERM. Employer or Executive may terminate Executive's employment under this Agreement at any time, but only on the following terms: 5.1 Employer may terminate Executive's employment under this Agreement at any time for "Due Cause" (as defined in Appendix I attached hereto and incorporated herein by this reference) upon the good faith determination by the Board that Due Cause exists for the termination of the employment relationship. 5.2 If Executive is incapacitated by accident, sickness or otherwise so as to render Executive mentally or physically incapable of performing the services required under Section 1 of this Agreement for a period of 240 consecutive days, and the incapacity is confirmed by the written opinion of two practicing medical doctors (one selected by Employer and one by Executive), upon the expiration of that period or at any time reasonably thereafter, Employer may terminate Executive's employment under this Agreement upon giving Executive or his legal representative written notice at least 30 days prior to the termination date, subject to the provisions of Section 6.2. Executive agrees, after written notice by the Board, to submit to examinations by the practicing medical doctors. If the medical doctors do not agree as to whether Executive is disabled, they shall promptly select a mutually acceptable third practicing medical doctor to further evaluate Executive, whose conclusion shall be rendered, in writing, within ten days of his or her selection. The conclusion of the third practicing medical doctor shall be final and binding on Employer and Executive. -3- 5.3 This Agreement shall terminate immediately upon Executive's death, subject to the provisions of Section 6.2. 5.4 Subject to the provisions of Section 6.3, Employer may terminate Executive's employment under this Agreement at any time for any reason whatsoever, even without Due Cause, by giving a written notice of termination to Executive, in which case the employment relationship shall terminate immediately upon the giving of the notice. If Employer terminates the employment of Executive other than (i) pursuant to Section 5.1 for Due Cause, (ii) due to incapacity pursuant to Section 5.2 or due to Executive's death pursuant to Section 5.3, or (iii) Executive's retirement, then the action by Employer, unless consented to in writing by Executive, shall be deemed to be a constructive termination by Employer of Executive's employment (a "Constructive Termination"), and, in that event, Executive shall be entitled to receive the compensation set forth in Section 6.3. 5.5 Executive may terminate this Agreement at any time for "Good Reason" (as defined in Appendix I attached hereto and incorporated herein by this reference) within 30 days after Executive learns of the event or condition constituting "Good Reason" and, in that event, shall be entitled to receive the compensation set forth in Section 6.3. 6. EFFECT OF TERMINATION. 6.1 If the employment relationship is terminated (a) by Employer for Due Cause pursuant to Section 5.1, or (c) by Executive breaching this Agreement by refusing to continue his employment, all compensation and benefits shall cease as of the date of termination, other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Executive that are earned and vested by the date of termination; (ii) Executive's pro rata annual Salary (as in effect as of the date of termination, payable in the manner as prescribed in the first sentence of Section 2.1) through the date of termination; (iii) any stock options which have vested as of the date of termination pursuant to the terms of the agreement granting the options; and (iv) accrued vacation as required by California law. 6.2 If this Agreement is terminated due to Executive's incapacity pursuant to Section 5.2 or due to Executive's death pursuant to Section 5.3, Executive or Executive's estate or legal representative, will be entitled to (i) those benefits that are provided by retirement and benefits plans and programs specifically adopted and approved by Employer for Executive that are earned and vested at the date of termination, (ii) a prorated Incentive Bonus for the fiscal year in which incapacity or death occurs, and (iii) receive the annual Salary compensation (as in effect as of the date of termination, payable in the manner as prescribed in the first sentence of Section 2.1) for one year following the date of termination, offset, however, by any payments received by Executive as a result of any disability insurance maintained by Employer for Executive's benefit. 6.3 In the event of a termination of this Agreement as a result of Constructive Termination, or by Executive for Good Reason, then Employer shall: -4- (a) pay to Executive on the date of termination his Salary in effect as of the date of termination through the end of the month during which the termination occurs plus credit for any vacation earned but not taken; (b) pay to Executive on the date of termination as severance pay an amount equal to three (3) times Executive's then current annual Salary, which amount shall be net of all then applicable federal, state and local taxes payable by Executive relating to such payment (said payment taking into consideration the full gross-up effect of additional taxes payable with respect to tax payments); (c) pay to Executive on the date of termination the prorated Incentive Bonus, if any, for the fiscal year during which termination occurs; and (d) maintain, at Employer's expense, in full force and effect, for Executive's continued benefit, all medical and life insurance to which Executive was entitled immediately prior to the date of termination (or at the election of Executive in the event of a Change in Control, immediately prior to the date of the Change in Control) until the earliest of (i) 3 years or (ii) the date or dates that Executive's continued participation in Employer's medical and/or life insurance plans, as applicable, is not possible under the terms of the plans (the earliest of (i) and (ii) is referred to herein as the "Benefits Date"). If Employer's medical and/or life insurance plans do not allow Executive's continued participation in the plan or plans, then Employer will pay to Executive, in monthly installments, from the date on which Executive's participation in the medical and/or life insurance, as applicable, is prohibited until the Benefits Date, the monthly premium or premiums which had been payable by Employer with respect to Executive for the discontinued medical and/or life insurance, as applicable. 6.4 Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another Employer after the date of termination, or otherwise. 6.5 In the event of a termination of this Agreement for any reason, Employer shall return to Executive all of Executive's personal property located at Employer's offices and/or corporate residence and shall pay all costs associated with the return of such property (including Executive's automobile) to Executive's principal place of residence. 6.6 Except as expressly provided herein, the provisions of this Agreement, and any payment or benefit provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any Employer benefit plan, employment agreement or other contract, plan or arrangement. 6.7 The amount of any payment provided under this Agreement shall not be reduced by reason of any present value calculation. -5- 6.8 Upon termination of this Agreement, compensation and benefits shall be paid to the Executive as set forth in the applicable subsection of this Section 6 and stock options granted to Executive, if any, shall be governed by the provisions of all stock option agreements between Employer and Executive. In the event of a termination of this Agreement by Executive for Good Reason, all other rights and benefits Executive may have under the employee and/or executive benefit plans and arrangements of Employer generally shall be determined in accordance with the terms and conditions of those plans and arrangements. 7. COVENANTS OF CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION. 7.1 During the term of this Agreement, Employer will provide to Executive certain confidential and proprietary information owned by Employer as more fully described below. Executive acknowledges that he occupies or will occupy a position of trust and confidence with Employer, and that Employer would be irreparably damaged if Executive were to breach the covenants set forth in this Section 7.1. Accordingly, Executive agrees that he will not, without the prior written consent of Employer, at any time during the term of this Agreement or any time thereafter, except as may be required by competent legal authority or as required by Employer to be disclosed in the course of performing Executive's duties under this Agreement for Employer, use or disclose to any person, firm or other legal entity, any confidential records, secrets or information obtained by Executive during his employment hereunder related to Employer or any parent, subsidiary or affiliated person or entity (collectively, "Confidential Information"). Confidential Information shall include, without limitation, information about Employer's Inventions (as defined in Section 8.1), customer lists and product pricing, data, know-how, formulae, processes, ideas, past, current and planned product development, market studies, computer software and programs, database and network technologies, strategic planning and risk management. Executive acknowledges and agrees that all Confidential Information of Employer and/or its affiliates will be received in confidence and as a fiduciary of Employer. Executive will exercise utmost diligence to protect and guard the Confidential Information. 7.2 Executive agrees that he will not, without the express written consent of the Board, take with him upon the termination of this Agreement, any document or paper, or any photocopy or reproduction or duplication thereof, relating to any Confidential Information. 7.3 Executive agrees that he will, upon the termination of this Agreement, return all Employer's property including but not limited to mobile telephone, fuel card, personal computer, all documents, working papers, information whether stored on computer disc or otherwise, and all other records relating to Employer and its business. Executive agrees that he will confirm in writing that he has complied with this clause, if requested to do so by Employer, within seven (7) days of receipt of such a request. 7.4 Executive agrees that, while Executive is employed with Employer and for a period of 24 months after the date of termination of this Agreement (the "Restricted Period"), provided that Executive continues to be paid his Salary (as in effect at the date of termination) during the Restricted Period, he will not, either directly or indirectly, have an interest in any business (whether as manager, operator, licensor, licensee, partner, 5% or greater equity holder, employee, consultant, director, advisor or otherwise) competitive with Employer or any of its business activities or solicit individuals or other entities that are customers or competitors of Employer during the six-month period immediately prior to the date of termination of this Agreement. Executive also agrees that, for the Restricted Period, he will not, either directly or indirectly, solicit any employee of Employer to terminate his employment with Employer. -6- 7.5 For purposes of this Section 7, "Employer" shall include any of its subsidiaries or any other entity in which it holds a 50% or greater equity interest. 8. INVENTIONS. 8.1 Any and all inventions, product, discoveries, improvements, processes, formulae, manufacturing methods or techniques, designs or styles, software applications or programs (collectively, "Inventions") made, developed or created by Executive, alone or in conjunction with others, during regular hours of work or otherwise, during the term of Executive's employment with Employer and for a period of two years thereafter that may be directly or indirectly related to the business of, or tests being carried out by, Employer, or any of its subsidiaries, shall be promptly disclosed by Executive to Employer and shall be Employer's exclusive property. The following provisions of the California Labor Code shall supplement this Section 8.1: SECTION 2870 OF THE CALIFORNIA LABOR CODE Application of Provisions Providing that Employee Shall Assign or Offer to Assign Rights in Invention to Employer. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to employer's business, or actual or demonstrably anticipated research or development of employer; or (2) Result from any work performed by the employee for employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. -7- 8.2 Executive will, upon Employer's request and without additional compensation, execute any documents necessary or advisable in the opinion of Employer's legal counsel to direct the issuance of patents to Employer with respect to Inventions that are to be Employer's exclusive property under this Section 8 or to vest in Employer title to the Inventions; the expense of securing any patent, however, shall be borne by Employer. 8.3 Executive will hold for Employer's sole benefit any Invention that is to be Employer's exclusive property under this Section 8 for which no patent is issued. 9. NO VIOLATION. Executive represents that he is not bound by any Agreement with any former employer or other party that would be violated by Executive's employment by Employer. 10. RETURN OF EMPLOYER'S PROPERTY. Upon the termination of this Agreement or whenever requested by Employer, Executive shall immediately deliver to Employer all property in his possession or under his control belonging to Employer, in good condition, ordinary wear and tear excepted. 11. INJUNCTIVE RELIEF. Executive acknowledges that the breach, or threatened breach, by Executive of the provisions of this Agreement shall cause irreparable harm to Employer, which harm cannot be fully redressed by the payment of damages to Employer. Accordingly, Employer shall be entitled, in addition to any other right or remedy it may have at law or in equity, to seek an injunction or restraining Executive from any violation or threatened violation of this Agreement. 12. DISPUTE RESOLUTION. Subject to Section 11, all claims, disputes and other matters in controversy ("dispute") arising, directly or indirectly out of or related to this Agreement, or the breach thereof, whether contractual or noncontractual, and whether during the term or after the termination of this Agreement, shall be resolved exclusively according to the procedures set forth in this Section 12, and not through resort to any judicial proceedings. 12.1 Neither party shall commence an arbitration proceeding pursuant to the provisions of Section 12.2 unless that party first gives a written notice (a "Dispute Notice") to the other party setting forth the nature of the dispute. The parties shall attempt in good faith to resolve the dispute by mediation under the American Arbitration Association Commercial Mediation Rules in effect on the date of the Dispute Notice. If the parties cannot agree on the selection of a mediator within 20 days after delivery of the Dispute Notice, the mediator will be selected by the American Arbitration Association. If the dispute has not been resolved by mediation within 60 days after delivery of the Dispute Notice, then the dispute shall be determined by arbitration in accordance with the provisions below. -8- 12.2 Any dispute that is not settled by mediation as provided in Section 12.1 shall be resolved by arbitration before a single arbitrator appointed by the American Arbitration Association or its successor in Orange County, California. The determination of the arbitrator shall be final and absolute. The arbitrator shall be governed by the duly promulgated rules and regulations of the American Arbitration Association or its successor then in effect, and the pertinent provisions of the laws of the State of California relating to arbitration. The decision of the arbitrator may be entered as a final judgment in any court of the State of California or elsewhere. The prevailing party in any such arbitration shall also be entitled to recover reasonable attorneys', accountants' and experts' fees and costs of suit in addition to any other relief awarded the prevailing party. 13. MISCELLANEOUS. 13.1 If any provisions contained in this Agreement is for any reason held to be totally invalid or unenforceable, such provision will be fully severable, and in lieu of such invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in terms as may be valid and enforceable. 13.2 All notices and other communications required or permitted hereunder or necessary or convenience in connection herewith shall be in writing and shall be deemed to have been given when mailed by registered mail or certified mail, return receipt requested or hand delivered, as follows (provided that notice of change of address shall be deemed given only when received): If to Employer: EMRISE Corporation 9485 Haven Avenue Rancho Cucamonga, CA 91730 Attention: Chief Financial Officer If to Executive: Carmine T. Oliva 901 Little River Drive P.O. Box 2006 Elizabeth City, NC 27906 or to such other names or addresses as Employer or Executive, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 13.2. 13.3 This Agreement shall be binding upon and inure to the benefit of Employer, its successors, legal representatives and assigns, and Executive, his heirs, executors, administrators, representatives, legatees and permitted assigns. Executive agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of Employer. If Executive should die while any amounts are due to him pursuant to this Agreement, all such amounts shall be paid to Executive's devisee, legatee or other designee, or if there be no such designee, to Executive's estate. Employer will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by Agreement in form and substance satisfactory to Executive and his legal counsel, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform each of them if no such succession or assignment had taken place. Any failure of Employer to obtain such -9- Agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle Executive to terminate Executive's employment for Good Reason. As used in this Agreement, "Employer" means EMRISE Corporation and any successor or assign to its business and/or assets which executes and delivers the Agreement provided for in this Section or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement Executive is employed by any company a majority of the voting securities of which is then owned by Employer, "Employer" as used in this Agreement shall in addition include that subsidiary company. In that event, Employer agrees that it shall pay or shall cause the subsidiary company to pay any amounts owed to Executive pursuant to this Agreement. 13.4 This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Executive and Employer with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of Employer or by any written agreement unless signed by an officer of Employer who is expressly authorized by Employer to execute that document. 13.5 The laws of the State of California will govern the interpretation, validity and effect of this Agreement without regard to principles of conflicts of law, the place of execution or the place for performance thereof. Employer and Executive agree that the state and federal courts situated in Riverside County, California shall have personal jurisdiction over Employer and Executive to hear all disputes arising under this Agreement. This Agreement is to be at least partially performed in Riverside County, California and, as such, Employer and Executive agree that venue shall be proper with the state or federal courts in Riverside County, California to hear such disputes. 13.6 Executive and Employer shall execute and deliver any and all additional instruments and agreements that may be necessary or proper to carry out the purposes of this Agreement. 13.7 The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a party of this Agreement. 13.8 This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement. 13.9 Executive acknowledges that Executive has had the opportunity to read this Agreement and discuss it with advisors and legal counsel, if Executive has so chosen. Executive also acknowledges the importance of this Agreement and that Employer is relying on this Agreement in entering into an employment relationship with Executive. -10- The undersigned, intending to be legally bound, have executed this Agreement on the date first written above. EMRISE CORPORATION Date: _________________ By: /s/ Laurence P. Finnegan, Jr. --------------------------------- Laurence P. Finnegan, Jr., Member of Compensation Committee Date: _________________ /s/ Carmine T. Oliva ------------------------------------- Carmine T. Oliva -11- APPENDIX I ADDITIONAL DEFINITIONS ---------------------- For purposes of this Agreement, the following additional capitalized terms shall have the respective definitions set forth below: BENEFIT PLAN. The term "Benefit Plan" means any benefit plan or arrangement (including, without limitation, Employer's profit sharing or stock option plans, if any, and medical, disability and life insurance plans) in which Executive is participating (or any other plans providing Executive with substantially similar benefits). CHANGE IN CONTROL. A "Change in Control" of Employer shall be deemed to have occurred if (A) there shall be consummated any consolidation or merger of Employer in which Employer is not the continuing or surviving corporation or pursuant to which all or substantially all of the shares of Employer's common stock would be converted into cash, securities or other property, other than a merger of Employer in which the holders of Employer's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (B) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Employer; (C) the stockholders of Employer approve any plan or proposal for the liquidation or dissolution of Employer; (D) any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than "persons" who are stockholders of Employer on the date of this Agreement, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of Employer's outstanding common stock after the date hereof; (E) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by Employer's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; or (F) there shall be any change of control of a nature required to be reported in response to Item 6 (e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act or any successor regulation of substantially similar import, regardless of whether Employer is subject to such reporting requirement. DUE CAUSE. The term "Due Cause" means any of the following events: (a) any intentional misapplication by Executive of Employer's funds or other material assets, or any other act of dishonesty injurious to Employer committed by Executive; or (b) Executive's conviction of (i) a felony or (ii) a crime involving moral turpitude; or (c) Executive's use or possession of any controlled substance or chronic abuse of alcoholic beverages, which use or possession the Board reasonably determines renders Executive unfit to serve in his capacity as a senior executive of Employer; or I-1 (d) Executive's breach, nonperformance or nonobservance of any of the terms of this Agreement, including but not limited to Executive's failure to adequately perform his duties or comply with the reasonable directions of the Board. Notwithstanding anything in the foregoing subsections (c) or (d) to the contrary, Employer shall not terminate Executive unless the Board first provides Executive with a written memorandum describing in detail how his performance hereunder is not satisfactory and Executive is given a reasonable period of time (not less than 90 days) to remedy the unsatisfactory performance related by the Board to Executive in that memorandum. A determination of whether Executive has satisfactorily remedied the unsatisfactory performance shall be promptly made by a majority of the disinterested directors of the Board at the end of the period provided to Executive for remedy and their determination shall be final. GOOD REASON. The term "Good Reason" as used in this Agreement shall mean any of the following which occur without Executive's written consent: (a) the assignment to Executive by the Board of duties substantially inconsistent with Executive's position, duties, responsibilities or status with Employer; a substantial change in Executive's titles or offices; any removal of Executive from or any failure to reelect Executive to any of his positions as an officer, except in connection with the termination of his employment for disability; Retirement; Executive's death; or by Executive other than for Good Reason; (b) a purported reduction by Employer in Executive's base salary to an amount less than the greater of (i) the base salary as in effect on the date hereof or (ii) 10% below the base salary in effect at the time of the purported reduction; (c) any failure by Employer to continue in effect any Benefit Plan; (d) any failure by Employer to obtain the assumption of this Agreement by any successor or assign of Employer; (e) a failure by Employer to comply with any material provision of this Agreement which has not been cured within 30 days after notice of noncompliance has been given by Executive to Employer, or if the failure is not capable of being cured in that time, a cure shall not have been diligently initiated by Employer within the 30 day period; (f) a material reduction in the highest level of support services and staff, office space and accouterments available to Executive during the term of this Agreement and that which is necessary to perform any additional duties assigned to Executive thereafter, which reduction is not generally effective for all officers employed by Employer; or I-2 (g) If Employer avails itself of, or is subjected by any third party to, a proceeding in bankruptcy in which Employer is the named debtor, an assignment by Employer for the benefit of its creditors, the appointment of a receiver for Employer, or any other proceeding involving insolvency or the protection of or from creditors and the proceeding has not been discharged or terminated within 90 days; provided, however, that any of the foregoing actions shall not be considered to be Good Reason if the action is undertaken by Employer as a termination for Due Cause. I-3 EX-10.2 3 emrise_ex1002.txt EMPLOYMENT AGR - FOOTE EXHIBIT 10.2 EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated effective as of January 1, 2006 ("Effective Date"), is made and entered into by and between EMRISE CORPORATION, a Delaware corporation ("Employer"), and RANDOLPH D. FOOTE ("Executive"). R E C I T A L S Employer desires that the Executive enter into an employment relationship with Employer in order to provide the necessary leadership and senior management skills that are important to the success of Employer. Employer believes that obtaining the Executive's services as an employee of Employer and the benefits of his business experience are of material importance to Employer and Employer's stockholders. A G R E E M E N T NOW, THEREFORE, in consideration of Executive's employment by Employer and the mutual promises and covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, Employer and Executive intend by this Agreement to specify the terms and conditions of Executive's employment relationship with Employer. 1. GENERAL DUTIES OF EMPLOYER AND EXECUTIVE. 1.1 Employer agrees to employ Executive and Executive agrees to accept employment by Employer and to serve Employer in an executive capacity upon the terms and conditions set forth herein. Employer hereby employs Executive as the Senior Vice President, Chief Financial Officer and Secretary of Employer as of the Effective Date, reporting to the President and Chief Executive Officer Employer (the "CEO"). Executive's duties and responsibilities shall be those normally assumed by the Senior Vice President, Chief Financial Officer and Secretary of a publicly-owned company similarly situated to Employer, as well as such other or additional duties, as may from time-to-time be assigned to Executive by the CEO. Such other or additional duties shall be consistent with the senior executive functions set forth above. 1.2 While employed hereunder, Executive shall use his best efforts to obey the lawful directions of the CEO. Executive shall also use his best efforts to promote the interests of Employer and to maintain and to promote the reputation of Employer. While employed hereunder, Executive shall devote his full business time, efforts, skills and attention to the affairs of Employer and faithfully perform his duties and responsibilities hereunder. 1.3 While this Agreement is in effect, Executive may from time to time engage in any activities that do not compete directly with Employer, provided that such activities do not interfere with his performance of his duties. Executive shall be permitted to (i) invest his personal assets as a passive investor in such form or manner as Executive may choose in his discretion, (ii) participate in various charitable efforts, and (iii) serve as a member of the Board of Directors of other corporations which are not competitors of Employer. 2. COMPENSATION AND BENEFITS. 2.1 As compensation for his services to Employer, Employer shall pay to Executive an annual base salary of $175,000 during the first 12-month period that this Agreement is in effect, payable in equal semimonthly payments in accordance with the Employer's regular payroll policy for salaried employees (the "Salary"). Thereafter, the Compensation Committee (the "Compensation Committee") of the Board of Directors of Employer (the "Board") shall perform an annual review of the Executive's Salary based on a review of Executive's performance of his duties prepared by Employer's President and Chief Executive Officer and Employer's other compensation policies. The Compensation Committee may, at its sole discretion, increase (but not decrease) the Salary at any time, and from time to time, after the first 12-month period that this Agreement is in effect. In addition, Executive shall be eligible for an incentive bonus ("Incentive Bonus"), payable no later than the date Employer's Form 10-K for the previous fiscal year is filed with the Securities and Exchange Commission based on criteria determined by the Compensation Committee, at its sole discretion. 2.2 Upon Executive's furnishing to Employer customary and reasonable documentary support (such as receipts or paid bills) evidencing costs and expenses incurred by him in the performance of his services and duties hereunder (including, without limitation, travel and entertainment and cellular telephone expenses) and containing sufficient information to establish the amount, date, place and essential character of the expenditure, Executive shall be reimbursed for such costs and expenses in accordance with Employer's normal expense reimbursement policy. 2.3 Executive shall be entitled to participate in the medical (including hospitalization), dental, life and disability insurance plans, to the extent offered by Employer, and in amounts consistent with the Employer's policy, for other senior executive officers of Employer, with premiums for all such insurance for Executive and his dependents to be paid by Employer. 2.4 Executive shall have the right to participate in any additional compensation, benefit, pension, stock option, stock purchase, 401(k) or other plan or arrangement of Employer now or hereafter existing for the benefit of other senior executive officers of Employer. 2.5 Executive shall be entitled to vacation (but in no event less than three weeks per year), holiday and other paid or unpaid leaves of absence consistent with Employer's normal policies for other senior executive officers of Employer or as otherwise approved by the Board. Executive shall be entitled to accrue vacation time for one year. If he does not take the accrued vacation during the next year, he shall be paid for the unused vacation at his Salary rate then in effect. 2.6 Executive shall be provided a monthly car allowance in the amount of at least $600.00. -2- 3. PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Executive shall use his best efforts to preserve the business and organization of Employer and to preserve the business relations of Employer. So long as the Executive is employed by Employer, Executive shall observe and fulfill proper standards of fiduciary responsibility attendant upon his service and office. 4. TERM. The term of this Agreement shall commence on the Effective Date and shall end on the second anniversary of the Effective Date, subject to earlier termination as set forth in Section 5. 5. TERMINATION OTHER THAN BY EXPIRATION OF THE TERM. Employer or Executive may terminate Executive's employment under this Agreement at any time, but only on the following terms: 5.1 Employer may terminate Executive's employment under this Agreement at any time for "Due Cause" (as defined in Appendix I attached hereto and incorporated herein by this reference) upon the good faith determination by the Board that Due Cause exists for the termination of the employment relationship. 5.2 If Executive is incapacitated by accident, sickness or otherwise so as to render Executive mentally or physically incapable of performing the services required under Section 1 of this Agreement for a period of 180 consecutive days, and the incapacity is confirmed by the written opinion of two practicing medical doctors licensed by and in good standing in the State of California (one selected by Employer and one by Executive), upon the expiration of that period or at any time reasonably thereafter, Employer may terminate Executive's employment under this Agreement upon giving Executive or his legal representative written notice at least 30 days prior to the termination date, subject to the provisions of Section 6.2. Executive agrees, after written notice by the Board, to submit to examinations by the practicing medical doctors. If the medical doctors do not agree as to whether Executive is disabled, they shall promptly select a mutually acceptable third practicing medical doctor to further evaluate Executive, whose conclusion shall be rendered, in writing, within ten days of his or her selection. The conclusion of the third practicing medical doctor shall be final and binding on Employer and Executive. 5.3 This Agreement shall terminate immediately upon Executive's death, subject to the provisions of Section 6.2. 5.4 Subject to the provisions of Section 6.3, Employer may terminate Executive's employment under this Agreement at any time for any reason whatsoever, even without Due Cause, by giving a written notice of termination to Executive, in which case the employment relationship shall terminate immediately upon the giving of the notice. If Employer terminates the employment of Executive other than (i) pursuant to Section 5.1 for Due Cause, (ii) due to incapacity pursuant to Section 5.2 or due to Executive's death pursuant to Section 5.3, or (iii) Executive's retirement, then the action by Employer, unless consented to in writing by Executive, shall be deemed to be a constructive termination by Employer of Executive's employment (a "Constructive Termination"), and, in that event, Executive shall be entitled to receive the compensation set forth in Section 6.3. -3- 5.5 Executive may terminate this Agreement at any time for "Good Reason" (as defined in Appendix I attached hereto and incorporated herein by this reference) within 30 days after Executive learns of the event or condition constituting "Good Reason" and, in that event, shall be entitled to receive the compensation set forth in Section 6.3. 6. EFFECT OF TERMINATION. 6.1 If the employment relationship is terminated (a) by Employer for Due Cause pursuant to Section 5.1 or (b) by Executive breaching this Agreement by refusing to continue his employment, all compensation and benefits shall cease as of the date of termination, other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Executive that are earned and vested by the date of termination; (ii) Executive's pro rata annual Salary (as in effect as of the date of termination, payable in the manner as prescribed in the first sentence of Section 2.1) through the date of termination; (iii) any stock options which have vested as of the date of termination pursuant to the terms of the agreement granting the options; and (iv) accrued vacation as required by California law. 6.2 If Executive's employment relationship is terminated due to Executive's incapacity pursuant to Section 5.2 or due to Executive's death pursuant to Section 5.3, Executive or Executive's estate or legal representative, will be entitled to (i) those benefits that are provided by retirement and benefits plans and programs specifically adopted and approved by Employer for Executive that are earned and vested at the date of termination, (ii) a prorated Incentive Bonus for the fiscal year in which incapacity or death occurs, and (iii) continue to receive the annual Salary compensation (as in effect as of the date of termination, payable in the manner as prescribed in the first sentence of Section 2.1) for one year following the date of termination, offset, however, by any payments received by Executive as a result of any disability insurance maintained by Employer for Executive's benefit. 6.3 In the event of a termination of this Agreement as a result of Constructive Termination, or by Executive for Good Reason, then Employer shall: (a) pay to Executive on the date of termination his Salary in effect as of the date of termination through the end of the month during which the termination occurs plus credit for any vacation earned but not taken; (b) pay to Executive on the date of termination as severance pay an amount equal to one and one-half (1 1/2) times Executive's then current annual Salary, which amount shall be net of all then applicable federal, state and local taxes payable by Executive relating to such payment (said payment taking into consideration the full gross-up effect of additional taxes payable with respect to tax payments); (c) pay to Executive on the date of termination the prorated Incentive Bonus, if any, for the fiscal year during which termination occurs; and (d) maintain, at Employer's expense, in full force and effect, for Executive's continued benefit, all medical and life insurance to which Executive was entitled immediately prior to the date of termination (or at the election of Executive in the event of a Change in Control, immediately prior to the date of the Change in Control) until the earliest of (i) 18 months or (ii) the date or dates that Executive's continued participation in Employer's medical and/or life insurance plans, as applicable, is not possible under the terms of the plans (the earliest of (i) and (ii) is referred to herein as the "Benefits Date"). If Employer's medical and/or life insurance plans do not allow Executive's continued participation in the plan or plans, then Employer will pay to Executive, in monthly installments, from the date on which Executive's participation in the medical and/or life insurance, as applicable, is prohibited until the Benefits Date, the monthly premium or premiums which had been payable by Employer with respect to Executive for the discontinued medical and/or life insurance, as applicable. -4- 6.4 Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another Employer after the date of termination, or otherwise. 6.5 Except as expressly provided herein, the provisions of this Agreement, and any payment or benefit provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any Employer benefit plan, employment agreement or other contract, plan or arrangement. 6.6 The amount of any payment provided under this Agreement shall not be reduced by reason of any present value calculation. 6.7 Upon termination of this Agreement, compensation and benefits shall be paid to the Executive as set forth in the applicable subsection of this Section 6 and stock options granted to Executive, if any, shall be governed by the provisions of all stock option agreements between Employer and Executive. In the event of a termination of this Agreement by Executive for Good Reason, all other rights and benefits Executive may have under the employee and/or executive benefit plans and arrangements of Employer generally shall be determined in accordance with the terms and conditions of those plans and arrangements. 7. COVENANTS OF CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION. 7.1 During the term of this Agreement, Employer will provide to Executive certain confidential and proprietary information owned by Employer as more fully described below. Executive acknowledges that he occupies or will occupy a position of trust and confidence with Employer, and that Employer would be irreparably damaged if Executive were to breach the covenants set forth in this Section 7.1. Accordingly, Executive agrees that he will not, without the prior written consent of Employer, at any time during the term of this Agreement or any time thereafter, except as may be required by competent legal authority or as required by Employer to be disclosed in the course of performing Executive's duties under this Agreement for Employer, use or disclose to any person, firm or other legal entity, any confidential records, secrets or information obtained by Executive during his employment hereunder related to Employer or any parent, subsidiary or affiliated person or entity (collectively, "Confidential Information"). Confidential Information shall include, without limitation, information about Employer's Inventions (as defined in Section 8.1), customer lists and product pricing, data, know-how, formulae, processes, ideas, past, current and planned product development, market studies, computer software and programs, database and network technologies, strategic planning and risk management. Executive acknowledges and agrees that all Confidential Information of Employer and/or its affiliates will be received in confidence and as a fiduciary of Employer. Executive will exercise utmost diligence to protect and guard the Confidential Information. -5- 7.2 Executive agrees that he will not, without the express written consent of the Board, take with him upon the termination of this Agreement, any document or paper, or any photocopy or reproduction or duplication thereof, relating to any Confidential Information. 7.3 Executive agrees that he will, upon the termination of this Agreement, return all Employer's property including but not limited to mobile telephone, fuel card, personal computer, all documents, working papers, information whether stored on computer disc or otherwise, and all other records relating to Employer and its business. Executive agrees that he will confirm in writing that he has complied with this clause, if requested to do so by Employer, within seven (7) days of receipt of such a request. 7.4 Executive agrees that, while Executive is employed with Employer and for a period of 24 months after the date of termination of this Agreement (the "Restricted Period"), provided that Executive continues to be paid his Salary (as in effect at the date of termination) during the Restricted Period, he will not, either directly or indirectly, have an interest in any business (whether as manager, operator, licensor, licensee, partner, 5% or greater equity holder, employee, consultant, director, advisor or otherwise) competitive with Employer or any of its business activities or solicit individuals or other entities that are customers or competitors of Employer during the six-month period immediately prior to the date of termination of this Agreement. Executive also agrees that, for the Restricted Period, he will not, either directly or indirectly, solicit any employee of Employer to terminate his employment with Employer. 7.5 For purposes of this Section 7, "Employer" shall include any of its subsidiaries or any other entity in which it holds a 50% or greater equity interest. 8. INVENTIONS. 8.1 Any and all inventions, product, discoveries, improvements, processes, formulae, manufacturing methods or techniques, designs or styles, software applications or programs (collectively, "Inventions") made, developed or created by Executive, alone or in conjunction with others, during regular hours of work or otherwise, during the term of Executive's employment with Employer and for a period of two years thereafter that may be directly or indirectly related to the business of, or tests being carried out by, Employer, or any of its subsidiaries, shall be promptly disclosed by Executive to Employer and shall be Employer's exclusive property. The following provisions of the California Labor Code shall supplement this Section 8.1: SECTION 2870 OF THE CALIFORNIA LABOR CODE Application of Provisions Providing that Employee Shall Assign or Offer to Assign Rights in Invention to Employer. -6- (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to employer's business, or actual or demonstrably anticipated research or development of employer; or (2) Result from any work performed by the employee for employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. 8.2 Executive will, upon Employer's request and without additional compensation, execute any documents necessary or advisable in the opinion of Employer's legal counsel to direct the issuance of patents to Employer with respect to Inventions that are to be Employer's exclusive property under this Section 8 or to vest in Employer title to the Inventions; the expense of securing any patent, however, shall be borne by Employer. 8.3 Executive will hold for Employer's sole benefit any Invention that is to be Employer's exclusive property under this Section 8 for which no patent is issued. 9. NO VIOLATION. Executive represents that he is not bound by any Agreement with any former employer or other party that would be violated by Executive's employment by Employer. 10. RETURN OF EMPLOYER'S PROPERTY. Upon the termination of this Agreement or whenever requested by Employer, Executive shall immediately deliver to Employer all property in his possession or under his control belonging to Employer, in good condition, ordinary wear and tear excepted. 11. INJUNCTIVE RELIEF. Executive acknowledges that the breach, or threatened breach, by Executive of the provisions of this Agreement shall cause irreparable harm to Employer, which harm cannot be fully redressed by the payment of damages to Employer. Accordingly, Employer shall be entitled, in addition to any other right or remedy it may have at law or in equity, to seek an injunction or restraining Executive from any violation or threatened violation of this Agreement. -7- 12. DISPUTE RESOLUTION. Subject to Section 11, all claims, disputes and other matters in controversy ("dispute") arising, directly or indirectly out of or related to this Agreement, or the breach thereof, whether contractual or noncontractual, and whether during the term or after the termination of this Agreement, shall be resolved exclusively according to the procedures set forth in this Section 12, and not through resort to any judicial proceedings. 12.1 Neither party shall commence an arbitration proceeding pursuant to the provisions of Section 12.2 unless that party first gives a written notice (a "Dispute Notice") to the other party setting forth the nature of the dispute. The parties shall attempt in good faith to resolve the dispute by mediation under the American Arbitration Association Commercial Mediation Rules in effect on the date of the Dispute Notice. If the parties cannot agree on the selection of a mediator within 20 days after delivery of the Dispute Notice, the mediator will be selected by the American Arbitration Association. If the dispute has not been resolved by mediation within 60 days after delivery of the Dispute Notice, then the dispute shall be determined by arbitration in accordance with the provisions below. 12.2 Any dispute that is not settled by mediation as provided in Section 12.1 shall be resolved by arbitration before a single arbitrator appointed by the American Arbitration Association or its successor in Orange County, California. The determination of the arbitrator shall be final and absolute. The arbitrator shall be governed by the duly promulgated rules and regulations of the American Arbitration Association or its successor then in effect, and the pertinent provisions of the laws of the State of California relating to arbitration. The decision of the arbitrator may be entered as a final judgment in any court of the State of California or elsewhere. The prevailing party in any such arbitration shall also be entitled to recover reasonable attorneys', accountants' and experts' fees and costs of suit in addition to any other relief awarded the prevailing party. 13. MISCELLANEOUS. 13.1 If any provisions contained in this Agreement is for any reason held to be totally invalid or unenforceable, such provision will be fully severable, and in lieu of such invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in terms as may be valid and enforceable. 13.2 All notices and other communications required or permitted hereunder or necessary or convenience in connection herewith shall be in writing and shall be deemed to have been given when mailed by registered mail or certified mail, return receipt requested or hand delivered, as follows (provided that notice of change of address shall be deemed given only when received): -8- If to Employer: EMRISE Corporation 9485 Haven Avenue Rancho Cucamonga, CA 91730 Attention: Chief Executive Officer If to Executive: Randolph D. Foote 5675 Via Mariposa Yorba Linda, CA 92887 or to such other names or addresses as Employer or Executive, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 13.2. 13.3 This Agreement shall be binding upon and inure to the benefit of Employer, its successors, legal representatives and assigns, and Executive, his heirs, executors, administrators, representatives, legatees and permitted assigns. Executive agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of Employer. If Executive should die while any amounts are due to him pursuant to this Agreement, all such amounts shall be paid to Executive's devisee, legatee or other designee, or if there be no such designee, to Executive's estate. Employer will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by Agreement in form and substance satisfactory to Executive and his legal counsel, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform each of them if no such succession or assignment had taken place. Any failure of Employer to obtain such Agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle Executive to terminate Executive's employment for Good Reason. As used in this Agreement, "Employer" means EMRISE Corporation and any successor or assign to its business and/or assets which executes and delivers the Agreement provided for in this Section or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement Executive is employed by any company a majority of the voting securities of which is then owned by Employer, "Employer" as used in this Agreement shall in addition include that subsidiary company. In that event, Employer agrees that it shall pay or shall cause the subsidiary company to pay any amounts owed to Executive pursuant to this Agreement. 13.4 This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Executive and Employer with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of Employer or by any written agreement unless signed by an officer of Employer who is expressly authorized by Employer to execute that document. 13.5 The laws of the State of California will govern the interpretation, validity and effect of this Agreement without regard to principles of conflicts of law, the place of execution or the place for performance thereof. Employer and Executive agree that the state and federal courts situated in Riverside County, California shall have personal jurisdiction over Employer and Executive to hear all disputes arising under this Agreement. This Agreement is to be at least partially performed in Riverside County, California and, as such, Employer and Executive agree that venue shall be proper with the state or federal courts in Riverside County, California to hear such disputes. -9- 13.6 Executive and Employer shall execute and deliver any and all additional instruments and agreements that may be necessary or proper to carry out the purposes of this Agreement. 13.7 The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a party of this Agreement. 13.8 This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement. 13.9 Executive acknowledges that Executive has had the opportunity to read this Agreement and discuss it with advisors and legal counsel, if Executive has so chosen. Executive also acknowledges the importance of this Agreement and that Employer is relying on this Agreement in entering into an employment relationship with Executive. The undersigned, intending to be legally bound, have executed this Agreement on the date first written above. EMRISE CORPORATION Date: _________________ By: /s/ Carmine T. Oliva ------------------------------------- Carmine T. Oliva, President and Chief Executive Officer Date: _________________ /s/ Randolph D. Foote ----------------------------------------- Randolph D. Foote -10- APPENDIX I ADDITIONAL DEFINITIONS ---------------------- For purposes of this Agreement, the following additional capitalized terms shall have the respective definitions set forth below: BENEFIT PLAN. The term "Benefit Plan" means any benefit plan or arrangement (including, without limitation, Employer's profit sharing or stock option plans, if any, and medical, disability and life insurance plans) in which Executive is participating (or any other plans providing Executive with substantially similar benefits). CHANGE IN CONTROL. A "Change in Control" of Employer shall be deemed to have occurred if (A) there shall be consummated any consolidation or merger of Employer in which Employer is not the continuing or surviving corporation or pursuant to which all or substantially all of the shares of Employer's common stock would be converted into cash, securities or other property, other than a merger of Employer in which the holders of Employer's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (B) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Employer; (C) the stockholders of Employer approve any plan or proposal for the liquidation or dissolution of Employer; (D) any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than "persons" who are stockholders of Employer on the date of this Agreement, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of Employer's outstanding common stock after the date hereof; (E) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by Employer's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; or (F) there shall be any change of control of a nature required to be reported in response to Item 6 (e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act or any successor regulation of substantially similar import, regardless of whether Employer is subject to such reporting requirement. DUE CAUSE. The term "Due Cause" means any of the following events: (a) any intentional misapplication by Executive of Employer's funds or other material assets, or any other act of dishonesty injurious to Employer committed by Executive; or (b) Executive's conviction of (i) a felony or (ii) a crime involving moral turpitude; or (c) Executive's use or possession of any controlled substance or chronic abuse of alcoholic beverages, which use or possession the Board reasonably determines renders Executive unfit to serve in his capacity as a senior executive of Employer; or I-1 (d) Executive's breach, nonperformance or nonobservance of any of the terms of this Agreement, including but not limited to Executive's failure to adequately perform his duties or comply with the reasonable directions of the Board. Notwithstanding anything in the foregoing subsections (c) or (d) to the contrary, Employer shall not terminate Executive unless the Board first provides Executive with a written memorandum describing in detail how his performance hereunder is not satisfactory and Executive is given a reasonable period of time (not less than 30 days) to remedy the unsatisfactory performance related by the Board to Executive in that memorandum. A determination of whether Executive has satisfactorily remedied the unsatisfactory performance shall be promptly made by a majority of the disinterested directors of the Board at the end of the period provided to Executive for remedy and their determination shall be final. GOOD REASON. The term "Good Reason" as used in this Agreement shall mean any of the following which occur without Executive's written consent: (a) the assignment to Executive by the Board of duties substantially inconsistent with Executive's position, duties, responsibilities or status with Employer; a substantial change in Executive's titles or offices; any removal of Executive from or any failure to reelect Executive to any of his positions as an officer, except in connection with the termination of his employment for disability; Retirement; Executive's death; or by Executive other than for Good Reason; (b) a purported reduction by Employer in Executive's base salary to an amount less than the greater of (i) the base salary as in effect on the date hereof or (ii) 10% below the base salary in effect at the time of the purported reduction; (c) any failure by Employer to continue in effect any Benefit Plan; (d) any failure by Employer to obtain the assumption of this Agreement by any successor or assign of Employer; (e) a failure by Employer to comply with any material provision of this Agreement which has not been cured within 30 days after notice of noncompliance has been given by Executive to Employer, or if the failure is not capable of being cured in that time, a cure shall not have been diligently initiated by Employer within the 30 day period; (f) a material reduction in the highest level of support services and staff, office space and accouterments available to Executive during the term of this Agreement and that which is necessary to perform any additional duties assigned to Executive thereafter, which reduction is not generally effective for all officers employed by Employer; or I-2 (g) If Employer avails itself of, or is subjected by any third party to, a proceeding in bankruptcy in which Employer is the named debtor, an assignment by Employer for the benefit of its creditors, the appointment of a receiver for Employer, or any other proceeding involving insolvency or the protection of or from creditors and the proceeding has not been discharged or terminated within 90 days; provided, however, that any of the foregoing actions shall not be considered to be Good Reason if the action is undertaken by Employer as a termination for Due Cause. I-3 EX-10.3 4 emrise_ex1003.txt EMPLOYMENT AGR - JEFFERIES EXHIBIT 10.3 EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated effective as of January 1, 2006 ("Effective Date"), is made and entered into by and between EMRISE CORPORATION, a Delaware corporation ("Employer"), and GRAHAM JEFFERIES ("Executive"). R E C I T A L S Employer desires that the Executive enter into an employment relationship with Employer in order to provide the necessary leadership and senior management skills that are important to the success of Employer. Employer believes that obtaining the Executive's services as an employee of Employer and the benefits of his business experience are of material importance to Employer and Employer's stockholders. A G R E E M E N T NOW, THEREFORE, in consideration of Executive's employment by Employer and the mutual promises and covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, Employer and Executive intend by this Agreement to specify the terms and conditions of Executive's employment relationship with Employer. 1. GENERAL DUTIES OF EMPLOYER AND EXECUTIVE. 1.1 Employer agrees to employ Executive and Executive agrees to accept employment by Employer and to serve Employer in an executive capacity upon the terms and conditions set forth herein. Employer hereby employs Executive as the Executive Vice President and Chief Operating Officer of Employer as of the Effective Date, reporting to the President and Chief Executive Officer Employer (the "CEO"). Executive's duties and responsibilities shall be those normally assumed by the Executive Vice President and Chief Operating Officer of a publicly-owned company similarly situated to Employer, as well as such other or additional duties, as may from time-to-time be assigned to Executive by the CEO. Such other or additional duties shall be consistent with the senior executive functions set forth above. 1.2 While employed hereunder, Executive shall use his reasonable endeavors to obey the lawful directions of the CEO. Executive shall also use his reasonable endeavors to promote the interests of Employer and to maintain and to promote the reputation of Employer. While employed hereunder, Executive shall devote his full business time, efforts, skills and attention to the affairs of Employer and faithfully perform his duties and responsibilities hereunder. 1.3 While this Agreement is in effect, Executive may from time to time engage in any activities that do not compete directly with Employer, provided that such activities do not interfere with his performance of his duties. Executive shall be permitted to (i) invest his personal assets as a passive investor in such form or manner as Executive may choose in his discretion, (ii) participate in various charitable efforts, and (iii) serve as a member of the Board of Directors of other corporations which are not competitors of Employer. 2. COMPENSATION AND BENEFITS. 2.1 As compensation for his services to Employer, Employer, through its wholly-owned subsidiary, Emrise Electronics, Ltd. ("Emrise Electronics"), shall pay to Executive an annual base salary of (pound)152,800 during the first 12-month period that this Agreement is in effect, payable in equal semimonthly payments in accordance with the Employer's regular payroll policy for salaried employees (the "Salary"). Thereafter, the Compensation Committee (the "Compensation Committee") of the Board of Directors of Employer (the "Board") shall perform an annual review of the Executive's Salary based on a review of Executive's performance of his duties prepared by Employer's President and Chief Executive Officer and Employer's other compensation policies. The Compensation Committee may, at its sole discretion, increase (but not decrease) the Salary at any time, and from time to time, after the first 12-month period that this Agreement is in effect. In addition, Executive shall be eligible for an incentive bonus ("Incentive Bonus"), payable no later than the date Employer's Form 10-K for the previous fiscal year is filed with the Securities and Exchange Commission based on criteria determined by the Compensation Committee, at its sole discretion. 2.2 Upon Executive's furnishing to Employer customary and reasonable documentary support (such as receipts or paid bills) evidencing costs and expenses incurred by him in the performance of his services and duties hereunder (including, without limitation, travel and entertainment and cellular telephone expenses) and containing sufficient information to establish the amount, date, place and essential character of the expenditure, Executive shall be reimbursed for such costs and expenses in accordance with Employer's normal expense reimbursement policy. 2.3 Executive shall be entitled to participate in the medical (including hospitalization), dental, life and disability insurance plans, to the extent offered by Employer, and in amounts consistent with the Employer's policy, for other senior executive officers of Employer, with premiums for all such insurance for Executive and his dependents to be paid by Employer, subject to customary employee contributions. 2.4 Executive shall have the right to participate in any additional compensation, benefit, pension, stock option, stock purchase, 401(k) or other plan or arrangement of Employer now or hereafter existing for the benefit of other senior executive officers of Employer. 2.5 Executive shall be entitled to twenty-five (25) working days' paid vacation in each calendar year in addition to public holidays in the United Kingdom. Executive shall also be entitled to other paid or unpaid leaves of absence consistent with Employer's normal policies for other senior executive officers of Employer or as otherwise approved by the Board. Executive shall be entitled to accrue vacation time for one year. If he does not take the accrued vacation during the next year, he shall be paid for the unused vacation at his Salary rate then in effect. 2.6 Executive shall be provided a monthly car allowance in the amount of at least (pound)460.00. -2- 3. PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Executive shall use his reasonable endeavors to preserve the business and organization of Employer and to preserve the business relations of Employer. So long as the Executive is employed by Employer, Executive shall observe and fulfill proper standards of fiduciary responsibility attendant upon his service and office. 4. TERM. The term of this Agreement shall commence on the Effective Date and shall end on the third anniversary of the Effective Date, subject to earlier termination as set forth in Section 5. 5. TERMINATION OTHER THAN BY EXPIRATION OF THE TERM. Employer or Executive may terminate Executive's employment under this Agreement at any time, but only on the following terms: 5.1 Employer may terminate Executive's employment under this Agreement at any time for "Due Cause" (as defined in Appendix I attached hereto and incorporated herein by this reference) upon the good faith determination by the Board that Due Cause exists for the termination of the employment relationship. 5.2 If Executive is incapacitated by accident, sickness or otherwise so as to render Executive mentally or physically incapable of performing the services required under Section 1 of this Agreement for a period of 180 consecutive days, this Agreement shall terminate immediately; provided, however, that Executive shall remain an employee of Emrise Electronics and shall be entitled to remuneration in an amount equal to the amount paid under Emrise Electronics' permanent health scheme, subject to the provisions of Section 6.2. 5.3 This Agreement shall terminate immediately upon Executive's death, subject to the provisions of Section 6.2. 5.4 Subject to the provisions of Section 6.3, Employer may terminate Executive's employment under this Agreement at any time for any reason whatsoever, even without Due Cause, by giving a written notice of termination to Executive, in which case the employment relationship shall terminate immediately upon the giving of the notice. If Employer terminates the employment of Executive other than (i) pursuant to Section 5.1 for Due Cause, (ii) due to incapacity pursuant to Section 5.2 or due to Executive's death pursuant to Section 5.3, or (iii) Executive's retirement, then the action by Employer, unless consented to in writing by Executive, shall be deemed to be a constructive termination by Employer of Executive's employment (a "Constructive Termination"), and, in that event, Executive shall be entitled to receive the compensation set forth in Section 6.3. 5.5 Executive may terminate this Agreement at any time for "Good Reason" (as defined in Appendix I attached hereto and incorporated herein by this reference) within 30 days after Executive learns of the event or condition constituting "Good Reason" and, in that event, shall be entitled to receive the compensation set forth in Section 6.3. -3- 6. EFFECT OF TERMINATION. 6.1 If the employment relationship is terminated (a) by Employer for Due Cause pursuant to Section 5.1, or (b) by Executive breaching this Agreement by refusing to continue his employment, all compensation and benefits shall cease as of the date of termination, other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Executive that are earned and vested by the date of termination; (ii) Executive's pro rata annual Salary (as in effect as of the date of termination, payable in the manner as prescribed in the first sentence of Section 2.1) through the date of termination; (iii) any stock options which have vested as of the date of termination pursuant to the terms of the agreement granting the options; and (iv) accrued vacation as required by applicable law. 6.2 If this Agreement is terminated due to Executive's incapacity pursuant to Section 5.2 or due to Executive's death pursuant to Section 5.3, Executive or Executive's estate or legal representative, will be entitled to (i) those benefits that are provided by retirement and benefits plans and programs specifically adopted and approved by Employer for Executive that are earned and vested at the date of termination, (ii) a prorated Incentive Bonus for the fiscal year in which incapacity or death occurs, and (iii) receive the annual Salary compensation (as in effect as of the date of termination, payable in the manner as prescribed in the first sentence of Section 2.1) for one year following the date of termination, offset, however, by any payments received by Executive as a result of any permanent health insurance scheme maintained by Employer for Executive's benefit. 6.3 In the event of a termination of this Agreement as a result of Constructive Termination, or by Executive for Good Reason, then Employer shall: (a) pay to Executive on the date of termination his Salary in effect as of the date of termination through the end of the month during which the termination occurs plus credit for any vacation earned but not taken; (b) pay to Executive on the date of termination as severance pay an amount equal to two (2) times Executive's then current annual Salary, which amount shall be net of all then applicable taxes payable by Executive relating to such payment (said payment taking into consideration the full gross-up effect of additional taxes payable with respect to tax payments); (c) pay to Executive on the date of termination the prorated Incentive Bonus, if any, for the fiscal year during which termination occurs; and (d) maintain, at Employer's expense, in full force and effect, for Executive's continued benefit, all medical and life insurance to which Executive was entitled immediately prior to the date of termination (or at the election of Executive in the event of a Change in Control, immediately prior to the date of the Change in Control) until the earliest of (i) 2 years or (ii) the date or dates that Executive's continued participation in Employer's medical and/or life insurance plans, as applicable, is not possible under the terms of the plans (the earliest of (i) and (ii) is referred to herein as the -4- "Benefits Date"). If Employer's medical and/or life insurance plans do not allow Executive's continued participation in the plan or plans, then Employer will pay to Executive, in monthly installments, from the date on which Executive's participation in the medical and/or life insurance, as applicable, is prohibited until the Benefits Date, the monthly premium or premiums which had been payable by Employer with respect to Executive for the discontinued medical and/or life insurance, as applicable. 6.4 Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another Employer after the date of termination, or otherwise. 6.5 Except as expressly provided herein, the provisions of this Agreement, and any payment or benefit provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any Employer benefit plan, employment agreement or other contract, plan or arrangement. 6.6 The amount of any payment provided under this Agreement shall not be reduced by reason of any present value calculation. 6.7 Upon termination of this Agreement, compensation and benefits shall be paid to the Executive as set forth in the applicable subsection of this Section 6 and stock options granted to Executive, if any, shall be governed by the provisions of all stock option agreements between Employer and Executive. In the event of a termination of this Agreement by Executive for Good Reason, all other rights and benefits Executive may have under the employee and/or executive benefit plans and arrangements of Employer generally shall be determined in accordance with the terms and conditions of those plans and arrangements. 7. COVENANTS OF CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION. 7.1 During the term of this Agreement, Employer will provide to Executive certain confidential and proprietary information owned by Employer as more fully described below. Executive acknowledges that he occupies or will occupy a position of trust and confidence with Employer, and that Employer would be irreparably damaged if Executive were to breach the covenants set forth in this Section 7.1. Accordingly, Executive agrees that he will not, without the prior written consent of Employer, at any time during the term of this Agreement or any time thereafter, except as may be required by competent legal authority or as required by Employer to be disclosed in the course of performing Executive's duties under this Agreement for Employer, use or disclose to any person, firm or other legal entity, any confidential records, secrets or information obtained by Executive during his employment hereunder related to Employer or any parent, subsidiary or affiliated person or entity (collectively, "Confidential Information"). Confidential Information shall include, without limitation, information about Employer's Inventions (as defined in Section 8.1), customer lists and product pricing, data, know-how, formulae, processes, ideas, past, current and planned product development, market studies, computer software and programs, database and network technologies, strategic planning and risk management. Executive acknowledges and agrees that all Confidential Information of Employer and/or its affiliates will be received in confidence and as a fiduciary of Employer. Executive will exercise utmost diligence to protect and guard the Confidential Information. -5- 7.2 Executive agrees that he will not, without the express written consent of the Board, take with him upon the termination of this Agreement, any document or paper, or any photocopy or reproduction or duplication thereof, relating to any Confidential Information. 7.3 Executive agrees that he will, upon the termination of this Agreement, return all Employer's property including but not limited to mobile telephone, fuel card, personal computer, all documents, working papers, information whether stored on computer disc or otherwise, and all other records relating to Employer and its business. Executive agrees that he will confirm in writing that he has complied with this clause, if requested to do so by Employer, within seven (7) days of receipt of such a request. 7.4 Executive agrees that, while Executive is employed with Employer and for a period of 24 months after the date of termination of this Agreement (the "Restricted Period"), provided that Executive continues to be paid his Salary (as in effect at the date of termination) during the Restricted Period, he will not, either directly or indirectly, have an interest in any business (whether as manager, operator, licensor, licensee, partner, 5% or greater equity holder, employee, consultant, director, advisor or otherwise) competitive with Employer or any of its business activities or solicit individuals or other entities that are customers or competitors of Employer during the six-month period immediately prior to the date of termination of this Agreement. Executive also agrees that, for the Restricted Period, he will not, either directly or indirectly, solicit any employee of Employer to terminate his employment with Employer. 7.5 For purposes of this Section 7, "Employer" shall include any of its subsidiaries or any other entity in which it holds a 50% or greater equity interest. 8. INVENTIONS. 8.1 Any and all inventions, product, discoveries, improvements, processes, formulae, manufacturing methods or techniques, designs or styles, software applications or programs (collectively, "Inventions") made, developed or created by Executive, alone or in conjunction with others, during regular hours of work or otherwise, during the term of Executive's employment with Employer and for a period of two years thereafter that may be directly or indirectly related to the business of, or tests being carried out by, Employer, or any of its subsidiaries, shall be promptly disclosed by Executive to Employer and shall be Employer's exclusive property. The following provisions of the California Labor Code shall supplement this Section 8.1: SECTION 2870 OF THE CALIFORNIA LABOR CODE Application of Provisions Providing that Employee Shall Assign or Offer to Assign Rights in Invention to Employer. -6- (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to employer's business, or actual or demonstrably anticipated research or development of employer; or (2) Result from any work performed by the employee for employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. 8.2 Executive will, upon Employer's request and without additional compensation, execute any documents necessary or advisable in the opinion of Employer's legal counsel to direct the issuance of patents to Employer with respect to Inventions that are to be Employer's exclusive property under this Section 8 or to vest in Employer title to the Inventions; the expense of securing any patent, however, shall be borne by Employer. 8.3 Executive will hold for Employer's sole benefit any Invention that is to be Employer's exclusive property under this Section 8 for which no patent is issued. 9. NO VIOLATION. Executive represents that he is not bound by any Agreement with any former employer or other party that would be violated by Executive's employment by Employer. 10. RETURN OF EMPLOYER'S PROPERTY. Upon the termination of this Agreement or whenever requested by Employer, Executive shall immediately deliver to Employer all property in his possession or under his control belonging to Employer, in good condition, ordinary wear and tear excepted. 11. INJUNCTIVE RELIEF. Executive acknowledges that the breach, or threatened breach, by Executive of the provisions of this Agreement shall cause irreparable harm to Employer, which harm cannot be fully redressed by the payment of damages to Employer. Accordingly, Employer shall be entitled, in addition to any other right or remedy it may have at law or in equity, to seek an injunction or restraining Executive from any violation or threatened violation of this Agreement. -7- 12. DISPUTE RESOLUTION. Subject to Section 11, all claims, disputes and other matters in controversy ("dispute") arising, directly or indirectly out of or related to this Agreement, or the breach thereof, whether contractual or noncontractual, and whether during the term or after the termination of this Agreement, shall be resolved exclusively according to the procedures set forth in this Section 12, and not through resort to any judicial proceedings. 12.1 Neither party shall commence an arbitration proceeding pursuant to the provisions of Section 12.2 unless that party first gives a written notice (a "Dispute Notice") to the other party setting forth the nature of the dispute. The parties shall attempt in good faith to resolve the dispute by mediation. If the dispute has not been resolved by mediation within 60 days after delivery of the Dispute Notice, then the dispute shall be determined by arbitration in accordance with Section 12.2. 12.2 Any dispute that is not settled by mediation as provided in Section 12.1 shall be resolved by arbitration under the Rules of the Chartered Institute of Arbitrators (the "Rules"), which Rules are deemed to be incorporated herein by reference. The prevailing party in any such arbitration shall also be entitled to recover reasonable solicitors', accountants' and experts' fees and costs of suit in addition to any other relief awarded the prevailing party. 13. MISCELLANEOUS. 13.1 If any provisions contained in this Agreement is for any reason held to be totally invalid or unenforceable, such provision will be fully severable, and in lieu of such invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in terms as may be valid and enforceable. 13.2 All notices and other communications required or permitted hereunder or necessary or convenience in connection herewith shall be in writing and shall be deemed to have been given when mailed by registered mail or certified mail, return receipt requested or hand delivered, as follows (provided that notice of change of address shall be deemed given only when received): If to Employer: EMRISE Corporation 9485 Haven Avenue Rancho Cucamonga, CA 91730 Attention: Chief Financial Officer If to Executive: Graham Jefferies 7 Shephers Close, Fen Ditton Cambs, CB5 8XJ, United Kingdom or to such other names or addresses as Employer or Executive, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 13.2. -8- 13.3 This Agreement shall be binding upon and inure to the benefit of Employer, its successors, legal representatives and assigns, and Executive, his heirs, executors, administrators, representatives, legatees and permitted assigns. Executive agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of Employer. If Executive should die while any amounts are due to him pursuant to this Agreement, all such amounts shall be paid to Executive's devisee, legatee or other designee, or if there be no such designee, to Executive's estate. Employer will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by Agreement in form and substance satisfactory to Executive and his legal counsel, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform each of them if no such succession or assignment had taken place. Any failure of Employer to obtain such Agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle Executive to terminate Executive's employment for Good Reason. As used in this Agreement, "Employer" means EMRISE Corporation and any successor or assign to its business and/or assets which executes and delivers the Agreement provided for in this Section or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement Executive is employed by any company a majority of the voting securities of which is then owned by Employer, "Employer" as used in this Agreement shall in addition include that subsidiary company. In that event, Employer agrees that it shall pay or shall cause the subsidiary company to pay any amounts owed to Executive pursuant to this Agreement. 13.4 This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Executive and Employer with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of Employer or by any written agreement unless signed by an officer of Employer who is expressly authorized by Employer to execute that document. 13.5 The laws of the United Kingdom will govern the interpretation, validity and effect of this Agreement without regard to principles of conflicts of law, the place of execution or the place for performance thereof. All disputes, claims or proceedings between the parties relating to the validity construction or performance of this Agreement shall be subject to the non-exclusive jurisdiction of the Courts of England to which the parties irrevocably submit. 13.6 Executive and Employer shall execute and deliver any and all additional instruments and agreements that may be necessary or proper to carry out the purposes of this Agreement. 13.7 The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a party of this Agreement. 13.8 This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement. 13.9 Executive acknowledges that Executive has had the opportunity to read this Agreement and discuss it with advisors and legal counsel, if Executive has so chosen. Executive also acknowledges the importance of this Agreement and that Employer is relying on this Agreement in entering into an employment relationship with Executive. -9- The undersigned, intending to be legally bound, have executed this Agreement on the date first written above. EMRISE CORPORATION Date: _________________ By: /s/ Carmine T. Oliva ------------------------------------- Carmine T. Oliva, President and Chief Executive Officer Date: __________________ /s/ Graham Jefferies ----------------------------------------- Graham Jefferies -10- APPENDIX I ADDITIONAL DEFINITIONS ---------------------- For purposes of this Agreement, the following additional capitalized terms shall have the respective definitions set forth below: BENEFIT PLAN. The term "Benefit Plan" means any benefit plan or arrangement (including, without limitation, Employer's profit sharing or stock option plans, if any, and medical, disability and life insurance plans) in which Executive is participating (or any other plans providing Executive with substantially similar benefits). CHANGE IN CONTROL. A "Change in Control" of Employer shall be deemed to have occurred if (A) there shall be consummated any consolidation or merger of Employer in which Employer is not the continuing or surviving corporation or pursuant to which all or substantially all of the shares of Employer's common stock would be converted into cash, securities or other property, other than a merger of Employer in which the holders of Employer's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (B) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Employer; (C) the stockholders of Employer approve any plan or proposal for the liquidation or dissolution of Employer; (D) any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than "persons" who are stockholders of Employer on the date of this Agreement, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of Employer's outstanding common stock after the date hereof; (E) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by Employer's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; or (F) there shall be any change of control of a nature required to be reported in response to Item 6 (e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act or any successor regulation of substantially similar import, regardless of whether Employer is subject to such reporting requirement. DUE CAUSE. The term "Due Cause" means any of the following events: (a) any intentional misapplication by Executive of Employer's funds or other material assets, or any other act of dishonesty injurious to Employer committed by Executive; or (b) Executive's conviction of (i) a felony or (ii) a crime involving moral turpitude; or (c) Executive's use or possession of any controlled substance or chronic abuse of alcoholic beverages, which use or possession the Board reasonably determines renders Executive unfit to serve in his capacity as a senior executive of Employer; or I-1 (d) Executive's breach, nonperformance or nonobservance of any of the terms of this Agreement, including but not limited to Executive's failure to adequately perform his duties or comply with the reasonable directions of the Board. Notwithstanding anything in the foregoing subsections (c) or (d) to the contrary, Employer shall not terminate Executive unless the Board first provides Executive with a written memorandum describing in detail how his performance hereunder is not satisfactory and Executive is given a reasonable period of time (not less than 30 days) to remedy the unsatisfactory performance related by the Board to Executive in that memorandum. A determination of whether Executive has satisfactorily remedied the unsatisfactory performance shall be promptly made by a majority of the disinterested directors of the Board at the end of the period provided to Executive for remedy and their determination shall be final. GOOD REASON. The term "Good Reason" as used in this Agreement shall mean any of the following which occur without Executive's written consent: (a) the assignment to Executive by the Board of duties substantially inconsistent with Executive's position, duties, responsibilities or status with Employer; a substantial change in Executive's titles or offices; any removal of Executive from or any failure to reelect Executive to any of his positions as an officer, except in connection with the termination of his employment for disability; Retirement; Executive's death; or by Executive other than for Good Reason; (b) a purported reduction by Employer in Executive's base salary to an amount less than the greater of (i) the base salary as in effect on the date hereof or (ii) 10% below the base salary in effect at the time of the purported reduction; (c) any failure by Employer to continue in effect any Benefit Plan; (d) any failure by Employer to obtain the assumption of this Agreement by any successor or assign of Employer; (e) a failure by Employer to comply with any material provision of this Agreement which has not been cured within 30 days after notice of noncompliance has been given by Executive to Employer, or if the failure is not capable of being cured in that time, a cure shall not have been diligently initiated by Employer within the 30 day period; (f) a material reduction in the highest level of support services and staff, office space and accouterments available to Executive during the term of this Agreement and that which is necessary to perform any additional duties assigned to Executive thereafter, which reduction is not generally effective for all officers employed by Employer; or (g) If Employer avails itself of, or is subjected by any third party to, a proceeding in bankruptcy in which Employer is the named debtor, an assignment by Employer for the benefit of its creditors, the appointment of a receiver for Employer, or any other proceeding involving insolvency or the protection of or from creditors and the proceeding has not been discharged or terminated within 90 days; provided, however, that any of the foregoing actions shall not be considered to be Good Reason if the action is undertaken by Employer as a termination for Due Cause. 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