Exhibit 10.4

 

ITERIS, INC. EMPLOYEE STOCK PURCHASE PLAN

 

1.                            Purpose. This Iteris, Inc. (“Company”) Employee
Stock Purchase Plan (the “Plan”) is intended to provide employees of the Company
and its Participating Subsidiaries with an opportunity to acquire a proprietary
interest in the Company through the purchase of shares of Common Stock. The
Company intends that the Plan qualify as an “employee stock purchase plan” under
Section 423 of the Code and the Plan shall be interpreted in a manner that is
consistent with that intent.

 

2.                            Definitions.

 

“Board or Board of Directors” means the Board of Directors of the Company, as
constituted from time to time.

 

“Code” means the U.S. Internal Revenue Code of 1986, as it may be amended from
time to time. Any reference to a section of the Code shall be deemed to include
a reference to any regulations promulgated thereunder.

 

“Committee” means the Compensation Committee or other committee appointed by the
Board to administer the Plan.

 

“Common Stock” means the common stock of the Company, par value $0.10 per share.

 

“Company” means Iteris, Inc., a Delaware corporation, including any successor
thereto.

 

“Compensation” means the fixed salary or base wage paid by the Company or a
Participating Subsidiary to a Participant as reported by the Company or a
Participating Subsidiary, as applicable, to the United States government for
income tax purposes, including bonuses and commissions and an Employee’s portion
of salary deferral contributions pursuant to Section 401(k) of the Code and any
amount excludable pursuant to Section 125 of the Code, overtime, vacation pay,
holiday pay, jury duty pay and funeral leave pay, but excluding education or
tuition reimbursements, imputed income arising under any group insurance or
benefit program, travel expenses, business and relocation expenses, and income
received in connection with stock options or other equity-based awards.

 

“Corporate Transaction” means a merger, consolidation, acquisition of property
or stock, separation, reorganization or other corporate event described in
Section 424 of the Code.

 

“Designated Broker” means the financial services firm or other agent designated
by the Company to maintain ESPP Share Accounts on behalf of Participants who
have purchased shares of Common Stock under the Plan.

 

“Effective Date” means January 1, 2018, subject to the Plan obtaining
stockholder approval in accordance with Section 19.11 hereof.

 

--------------------------------------------------------------------------------

 

“Employee” means any person who renders services to the Company or a
Participating Subsidiary as an employee pursuant to an employment relationship
with such employer. For purposes of the Plan, the employment relationship shall
be treated as continuing intact while the individual is on military leave, sick
leave or other leave of absence approved by the Company or a Participating
Subsidiary that meets the requirements of Treasury Regulation
Section 1.421-1(h)(2). Where the period of leave exceeds three (3) months, or
such other period of time specified in Treasury Regulation
Section 1.421-1(h)(2), and the individual’s right to re-employment is not
guaranteed by statute or contract, the employment relationship shall be deemed
to have terminated on the first day immediately following such three-month
period, or such other period specified in Treasury Regulation
Section 1.421-1(h)(2).

 

“Eligible Employee” means an Employee who is customarily employed (and regularly
scheduled) for at least twenty (20) hours per week and more than five (5) months
in any calendar year.  Notwithstanding the foregoing, the Committee may exclude
from participation in the Plan or any Offering Employees who are “highly
compensated employees” of the Company or a Participating Subsidiary (within the
meaning of Section 414(q) of the Code) or a sub-set of such highly compensated
employees.

 

“Enrollment Form” means an agreement pursuant to which an Eligible Employee may
elect to enroll in the Plan, to authorize a new level of payroll deductions, or
to stop payroll deductions and withdraw from an Offering Period.

 

“ESPP Share Account” means an account into which Common Stock purchased with
accumulated payroll deductions at the end of an Offering Period are held on
behalf of a Participant.

 

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

 

“Fair Market Value” means, as of any date, the value of the shares of Common
Stock as determined below. If the shares are listed on any established stock
exchange or a national market system, including, without limitation, the NASDAQ
Stock Market, the Fair Market Value shall be the closing selling price of a
share (or if no sales were reported, the closing price on the date immediately
preceding such date) at the close of regular hours trading (i.e., before
after-hours trading begins) as quoted on such exchange or system on the day of
determination, as reported by the National Association of Securities Dealers (if
primarily traded on the Nasdaq Global or Global Select Market) or as officially
quoted in the composite tape of transactions on any other Stock Exchange on
which the Common Stock is then primarily traded. In the absence of an
established market for the shares, the Fair Market Value shall be determined in
good faith by the Committee and such determination shall be conclusive and
binding on all persons.

 

“Offering Date” means the first Trading Day of each Offering Period as
designated by the Committee.

 

2

--------------------------------------------------------------------------------

 

“Offering” or “Offering Period” means a period of six months beginning each
January 1st and July 1st of each year; provided, that, pursuant to Section 5,
the Committee may change the duration of future Offering Periods (subject to a
maximum Offering Period of twenty-seven (27) months) and/or the start and end
dates of future Offering Periods.

 

“Participant” means an Eligible Employee who is actively participating in the
Plan.

 

“Participating Subsidiaries” means the Subsidiaries that have been designated as
eligible to participate in the Plan, and such other Subsidiaries that may be
designated by the Committee from time to time in its sole discretion.

 

“Plan” means this Iteris, Inc. Employee Stock Purchase Plan, as set forth
herein, and as amended from time to time.

 

“Purchase Date” means the last Trading Day of each Offering Period.

 

“Purchase Price” means an amount equal to the lesser of (1) eighty-five percent
(85%) (or such greater percentage as determined by the Committee) of the Fair
Market Value on the Offering Date or (2) eighty-five percent (85%) (or such
greater percentage as determined by the Committee) of the Fair Market Value on
the Purchase Date; provided, that, the Purchase Price per share of Common Stock
will in no event be less than the par value of the Common Stock.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Subsidiary” means any domestic corporation, of which not less than 50% of the
combined voting power is held by the Company or a Subsidiary, whether or not
such corporation exists now or is hereafter organized or acquired by the Company
or a Subsidiary.  In all cases, the determination of whether an entity is a
Subsidiary shall be made in accordance with Section 424(f) of the Code.

 

“Trading Day” means any day on which the national stock exchange upon which the
Common Stock is listed is open for trading or, if the Common Stock is not listed
on an established stock exchange or national market system, a business day, as
determined by the Committee in good faith.

 

3.                            Administration. The Plan shall be administered by
the Committee, which shall have the authority to construe and interpret the
Plan, prescribe, amend and rescind rules relating to the Plan’s administration
and take any other actions necessary or desirable for the administration of the
Plan. The Committee may correct any defect or supply any omission or reconcile
any inconsistency or ambiguity in the Plan. The Committee shall have the
authority and discretion to change the Purchase Price within the parameters set
forth above, and if the Committee changes the Purchase Price from one Offering
Period to another, the Company will notify Participants of any change in
Purchase Price at least fifteen (15) days prior to the beginning of the next
Offering Period to which the changed Purchase Price applies. The decisions of
the Committee shall be final and binding on all persons. All expenses of
administering the Plan shall be borne by the Company.

 

3

--------------------------------------------------------------------------------

 

4.                            Eligibility. Unless otherwise determined by the
Committee in a manner that is consistent with Section 423 of the Code, any
individual who is an Eligible Employee as of the Offering Date for a particular
Offering Period shall be eligible to participate in such Offering Period,
subject to the requirements of Section 423 of the Code.

 

Notwithstanding any provision of the Plan to the contrary, no Eligible Employee
shall be granted an option under the Plan if (i) immediately after the grant of
the option, such Eligible Employee (or any other person whose stock would be
attributed to such Eligible Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company or hold outstanding options to purchase
stock possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any Subsidiary or (ii) such option would
permit his or her rights to purchase stock under all employee stock purchase
plans (described in Section 423 of the Code) of the Company and its Subsidiaries
to accrue at a rate that exceeds $25,000 of the Fair Market Value of such stock
(determined at the time the option is granted) for each calendar year in which
such option is outstanding at any time.

 

5.                            Offering Periods. The Plan shall be implemented by
a series of Offering Periods, each of which shall be six (6) months in duration,
with new Offering Periods commencing on or about January 1 and July 1 of each
year (or such other times as determined by the Committee). The Committee shall
have the authority to change the duration, frequency, start and end dates of
Offering Periods.

 

6.                            Participation.

 

6.1                               Enrollment; Payroll Deductions. An Eligible
Employee may elect to participate in the Plan by properly completing an
Enrollment Form, which may be electronic, and submitting it to the Company, in
accordance with the enrollment procedures established by the Committee.
Participation in the Plan is entirely voluntary. By submitting an Enrollment
Form, the Eligible Employee authorizes payroll deductions from his or her pay
check in an amount equal to at least 1%, but not more than 15% of his or her
Compensation on each pay day occurring during an Offering Period (or such other
maximum percentage as the Committee may establish from time to time before an
Offering Period begins). Payroll deductions shall commence on the first payroll
date following the Offering Date and end on the last payroll date on or before
the Purchase Date. The Company shall maintain records of all payroll deductions
but shall have no obligation to pay interest on payroll deductions or to hold
such amounts in a trust or in any segregated account.

 

6.2                               Election Changes. During an Offering Period, a
Participant may decrease or increase his or her rate of payroll deductions
applicable to such Offering Period only once. To make such a change, the
Participant must submit a new Enrollment Form authorizing the new rate of
payroll deductions and any change shall become effective on the next payroll
period that begins no earlier than five (5) business days after the Company’s
receipt of a new Enrollment Form or such other notice period as may be
established by the Compensation Committee from time to time in its sole
discretion (to the extent practical

 

4

--------------------------------------------------------------------------------

 

under the Company’s payroll practices) following delivery of a new Enrollment
Form. A Participant may decrease or increase his or her rate of payroll
deductions for future Offering Periods by submitting a new Enrollment
Form authorizing the new rate of payroll deductions at least fifteen days before
the start of the next Offering Period.

 

6.3                               Automatic Re-enrollment. The deduction rate
selected in the Enrollment Form shall remain in effect for subsequent Offering
Periods unless the Participant (a) submits a new Enrollment Form authorizing a
new level of payroll deductions in accordance with Section 6.2, (b) withdraws
from the Plan in accordance with Section 10, or (c) terminates employment or
otherwise becomes ineligible to participate in the Plan.

 

7.                            Grant of Option. On each Offering Date, each
Participant in the applicable Offering Period shall be granted an option to
purchase, on the Purchase Date, a number of shares of Common Stock determined by
dividing the Participant’s accumulated payroll deductions by the applicable
Purchase Price; provided, however, that in no event shall any Participant
purchase more than 5,000 shares of Common Stock during an Offering Period
(subject to adjustment in accordance with Section 18 and the limitations set
forth in Section 13 of the Plan).

 

8.                            Exercise of Option/Purchase of Shares. A
Participant’s option to purchase shares of Common Stock will be exercised
automatically on the Purchase Date of each Offering Period. The Participant’s
accumulated payroll deductions will be used to purchase the maximum number of
whole shares that can be purchased with the amounts in the Participant’s
notional account. No fractional shares may be purchased but any remaining funds
that are not used to purchase Common Stock will carry forward to the next
Offering Period, subject to earlier withdrawal by the Participant in accordance
with Section 10 or termination of employment in accordance with Section 11.

 

9.                            Transfer of Shares. As soon as reasonably
practicable after each Purchase Date, the Company will arrange for the delivery
to each Participant of the shares of Common Stock purchased upon exercise of his
or her option. The Committee may permit or require that the shares be deposited
directly into an ESPP Share Account established in the name of the Participant
with a Designated Broker and may require that the shares of Common Stock be
retained with such Designated Broker for a specified period of time. 
Participants will not have any voting, dividend or other rights of a shareholder
with respect to the shares of Common Stock subject to any option granted
hereunder until such shares have been delivered pursuant to this Section 9.

 

10.                     Withdrawal.

 

10.1                        Withdrawal Procedure. A Participant may withdraw
from an Offering by submitting to the Company a revised Enrollment
Form indicating his or her election to withdraw at any time before the Purchase
Date, provided that such revised Enrollment Form is received at least ten
(10) business days prior to the Purchase Date (or such other period as may be
established by the Compensation Committee from time to time in its sole
discretion). The accumulated payroll deductions held on behalf of a Participant
in his or her notional account (that have not been used to purchase shares of
Common Stock) shall be paid to the Participant promptly following receipt of the
Participant’s Enrollment Form indicating his or

 

5

--------------------------------------------------------------------------------

 

her election to withdraw and the Participant’s option shall be automatically
terminated. If a Participant withdraws from an Offering Period, no payroll
deductions will be made during any succeeding Offering Period, unless the
Participant re-enrolls in accordance with Section 6.1 of the Plan.

 

10.2                        Effect on Succeeding Offering Periods. A
Participant’s election to withdraw from an Offering Period will not have any
effect upon his or her eligibility to participate in succeeding Offering Periods
that commence following the completion of the Offering Period from which the
Participant withdraws, provided the Participant submits a new Enrollment Form in
accordance with this Plan.

 

11.                     Termination of Employment; Change in Employment Status.
Upon termination of a Participant’s employment for any reason, including death,
disability or retirement, or a change in the Participant’s employment status
following which the Participant is no longer an Eligible Employee, which in
either case occurs at least fifteen days (or such other period as may be
established by the Compensation Committee from time to time in its sole
discretion) before the Purchase Date, the Participant will be deemed to have
withdrawn from the Plan and the payroll deductions in the Participant’s notional
account (that have not been used to purchase shares of Common Stock) shall be
returned to the Participant, or in the case of the Participant’s death, to the
person(s) entitled to such amounts under Section 17, and the Participant’s
option shall be automatically terminated. If the Participant’s termination of
employment or change in status occurs within fifteen days  (or such other period
as may be established by the Compensation Committee from time to time in its
sole discretion) before a Purchase Date, the accumulated payroll deductions
shall be used to purchase shares on the Purchase Date.

 

12.                     Interest. No interest shall accrue on or be payable with
respect to the payroll deductions of a Participant in the Plan.

 

13.                     Shares Reserved for Plan.

 

13.1                        Number of Shares. A total of One Million (1,000,000)
shares of Common Stock have been reserved as authorized for the grant of options
under the Plan. The shares of Common Stock may be newly issued shares, treasury
shares or shares acquired on the open market.

 

13.2                        Over-subscribed Offerings. The number of shares of
Common Stock which a Participant may purchase in an Offering under the Plan may
be reduced if the Offering is over-subscribed. No option granted under the Plan
shall permit a Participant to purchase shares of Common Stock which, if added
together with the total number of shares of Common Stock purchased by all other
Participants in such Offering would exceed the total number of shares of Common
Stock remaining available under the Plan. If the Committee determines that, on a
particular Purchase Date, the number of shares of Common Stock with respect to
which options are to be exercised exceeds the number of shares of Common Stock
then available under the Plan, the Company shall make a pro rata allocation of
the shares of Common Stock remaining available for purchase in as uniform a
manner as practicable and as the Committee determines to be equitable.

 

6

--------------------------------------------------------------------------------

 

14.                     Transferability. No payroll deductions credited to a
Participant, nor any rights with respect to the exercise of an option or any
rights to receive Common Stock hereunder may be assigned, transferred, pledged
or otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 17 hereof) by the Participant. Any
attempt to assign, transfer, pledge or otherwise dispose of such rights or
amounts shall be without effect.

 

15.                     Application of Funds. All payroll deductions received or
held by the Company under the Plan may be used by the Company for any corporate
purpose to the extent permitted by applicable law, and the Company shall not be
required to segregate such payroll deductions or contributions.

 

16.                     Statements. Participants will be provided with
statements at least annually which shall set forth the contributions made by the
Participant to the Plan, the Purchase Price of any shares of Common Stock
purchased with accumulated funds, the number of shares of Common Stock
purchased, and any payroll deduction amounts remaining in the Participant’s
notional account.

 

17.                     Designation of Beneficiary. A Participant may file, on
forms supplied by the Company, a written designation of beneficiary who is to
receive any shares of Common Stock and cash in respect of any fractional shares
of Common Stock, if any, from the Participant’s ESPP Share Account under the
Plan in the event of such Participant’s death. In addition, a Participant may
file a written designation of beneficiary who is to receive any cash withheld
through payroll deductions and credited to the Participant’s notional account in
the event of the Participant’s death prior to the Purchase Date of an Offering
Period.

 

18.                     Adjustments Upon Changes in Capitalization; Dissolution
or Liquidation; Corporate Transactions.

 

18.1                        Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Common Stock, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, reincorporation, other reorganization, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of the
Company, or other change in the Company’s structure affecting the Common Stock
occurs without the Company’s receipt of consideration, or should the value of
shares of Common Stock be substantially reduced as a result of a spin-off
transaction or an extraordinary dividend or distribution, then in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, the Committee will, in such manner as it
deems equitable, adjust the number of shares and class of Common Stock that may
be delivered under the Plan, the Purchase Price per share and the number of
shares of Common Stock covered by each outstanding option under the Plan, and
the numerical limits of Section 7 and Section 13.

 

18.2                        Dissolution or Liquidation. Unless otherwise
determined by the Committee, in the event of a proposed dissolution or
liquidation of the Company, any Offering Period then in progress will be
shortened by setting a new Purchase Date and the Offering Period will end
immediately prior to the proposed dissolution or liquidation. The new Purchase
Date will be before the date of the Company’s proposed dissolution or
liquidation. Before the new Purchase Date, the Committee will provide each
Participant with written notice, which may

 

7

--------------------------------------------------------------------------------

 

be electronic, of the new Purchase Date and that the Participant’s option will
be exercised automatically on such date, unless before such time, the
Participant has withdrawn from the Offering in accordance with Section 10.

 

18.3                        Corporate Transaction. In the event of a Corporate
Transaction, the Committee may cause each outstanding option to be assumed or an
equivalent option substituted by the successor corporation or a parent or
Subsidiary of such successor corporation. If the successor corporation does not
assume or substitute the option, the Committee may either: (a) shorten the
Offering Period with respect to which the option relates and set a new Purchase
Date on which the Offering Period will end. The new Purchase Date will occur
before the date of the Corporate Transaction. Prior to the new Purchase Date,
the Committee will provide each Participant with written notice, which may be
electronic, of the new Purchase Date and that the Participant’s option will be
exercised automatically on such date, unless before such time, the Participant
has withdrawn from the Offering in accordance with Section 10; or (b) terminate
the Offering Period and refund all accumulated payroll deductions to the
Participants.

 

19.                     General Provisions.

 

19.1                        Equal Rights and Privileges. Notwithstanding any
provision of the Plan to the contrary and in accordance with Section 423 of the
Code, all Eligible Employees who are granted options under the Plan shall have
the same rights and privileges.

 

19.2                        No Right to Continued Service. Neither the Plan nor
any compensation paid hereunder will confer on any Participant the right to
continue as an Employee or in any other capacity.

 

19.3                        Rights as Stockholder. A Participant will become a
stockholder with respect to the shares of Common Stock that are purchased
pursuant to options granted under the Plan when the shares are transferred to
the Participant’s ESPP Share Account. A Participant will have no rights as a
stockholder with respect to shares of Common Stock for which an election to
participate in an Offering Period has been made until such Participant becomes a
stockholder as provided above.

 

19.4                        Successors and Assigns. The Plan shall be binding on
the Company and its successors and assigns.

 

19.5                        Entire Plan. This Plan constitutes the entire plan
with respect to the subject matter hereof and supersedes all prior plans with
respect to the subject matter hereof.

 

19.6                        Compliance with Law. The obligations of the Company
with respect to payments under the Plan are subject to compliance with all
applicable laws and regulations. Common Stock shall not be issued with respect
to an option granted under the Plan unless the exercise of such option and the
issuance and delivery of the shares of Common Stock pursuant thereto shall
comply with all applicable provisions of law, including, without limitation, the
Securities Act, the Exchange Act, and the requirements of any stock exchange
upon which the shares may then be listed.

 

8

--------------------------------------------------------------------------------

 

19.7                        Notice of Disqualifying Dispositions. Each
Participant shall give the Company prompt written notice of any disposition or
other transfer of shares of Common Stock acquired pursuant to the exercise of an
option acquired under the Plan, if such disposition or transfer is made within
two years after the Offering Date or within one year after the Purchase Date.

 

19.8                        Term of Plan. The Plan shall become effective on the
Effective Date and, unless terminated earlier pursuant to Section 19.9, shall
have a term of ten years.

 

19.9                        Amendment or Termination. The Committee may, in its
sole discretion, amend, suspend or terminate the Plan at any time and for any
reason, provided, however, that in no event may the Committee effect any of the
following amendments or revisions to the Plan without the approval of the
Company’s shareholders: (i) increase the number of shares of Common Stock
issuable under the Plan (other than adjustments pursuant to Section 19.1) or
(ii) materially modify the requirements for eligibility to participate in the
Plan. If the Plan is terminated, the Committee may elect to terminate all
outstanding Offering Periods either immediately or once shares of Common Stock
have been purchased on the next Purchase Date (which may, in the discretion of
the Committee, be accelerated) or permit Offering Periods to expire in
accordance with their terms (and subject to any adjustment in accordance with
Section 18). If any Offering Period is terminated before its scheduled
expiration, all amounts that have not been used to purchase shares of Common
Stock will be returned to Participants (without interest, except as otherwise
required by law) as soon as administratively practicable.

 

19.10                 Applicable Law. The laws of the State of Delaware shall
govern all questions concerning the construction, validity and interpretation of
the Plan, without regard to such state’s conflict of law rules.

 

19.11                 Stockholder Approval. The Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board.

 

19.12                 Section 423. The Plan is intended to qualify as an
“employee stock purchase plan” under Section 423 of the Code. Any provision of
the Plan that is inconsistent with Section 423 of the Code shall be reformed to
comply with Section 423 of the Code.

 

19.13                 Withholding. To the extent required by applicable Federal,
state or local law, a Participant must make arrangements satisfactory to the
Company for the payment of any withholding or similar tax obligations that arise
in connection with the Plan.

 

19.14                 Severability. If any provision of the Plan shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, and the Plan shall
be construed as if such invalid or unenforceable provision were omitted.

 

19.15                 Headings. The headings of sections herein are included
solely for convenience and shall not affect the meaning of any of the provisions
of the Plan.

 

9

--------------------------------------------------------------------------------