**Exhibit 10.3**

 

**EXECUTIVE EMPLOYMENTAGREEMENT**

 

THIS EXECUTIVE EMPLOYMENTAGREEMENT (the **“Agreement”**) dated effective as ofNovember 1, 2007 (**“Effective Date”**),is made and entered into by and between EMRISE CORPORATION, a Delawarecorporation (**“Employer”**), and D. JOHN DONOVAN (**“Executive”**).

 

**R E C I T A L S**

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Employer desires thatExecutive enter into an employment relationship with Employer in order toprovide the necessary leadership and senior management skills that areimportant to the success of Employer. Employer believes that obtainingExecutive’s services as an employee of Employer and the benefits of hisbusiness experience are of material importance to Employer and Employer’sstockholders.

 

NOW, THEREFORE, inconsideration of Executive’s employment by Employer and the mutual promises andcovenants contained herein, the receipt and sufficiency of which is herebyacknowledged, Employer and Executive intend by this Agreement to specify theterms and conditions of Executive’s employment relationship with Employer.

 

# 1.             **General Duties of Employer and Executive**.

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## (a)           Employer agrees toemploy Executive and Executive agrees to accept employment by Employer and toserve Employer in an executive capacity upon the terms and conditions set forthherein. Employer hereby employs Executive as Vice President Finance andAdministration, Secretary and Treasurer as of the Effective Date, reporting tothe President and Chief Executive Officer (the **“CEO”**).Executiveshall serve as Employer’s principal accounting and financial officer.  Executive’s duties and responsibilities shallbe those normally assumed by the principal accounting and financial officer,Vice President Finance and Administration, Secretary and Treasurer of apublicly-owned company similarly situated to Employer, as well as such other oradditional duties, as may from time-to-time be assigned to Executive by theCEO, which Employer anticipates will include, among other things, serving as anofficer or director of Employer’s domestic subsidiaries.  Such other or additional duties shall beconsistent with the senior executive functions set forth above.

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## (b)           While employedhereunder, Executive shall use his best efforts to obey the lawful directionsof the CEO. Executive shall also use his best efforts to promote the interestsof Employer and to maintain and to promote the reputation of Employer. Whileemployed hereunder, Executive shall devote his full business time, efforts,skills and attention to the affairs of Employer and faithfully perform hisduties and responsibilities hereunder.

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## (c)           While this Agreement isin effect, Executive may from time to time engage in any activities that do notcompete directly with Employer, provided that such activities do not interferewith his performance of his duties. Executive shall be permitted to (i) investhis personal assets as a passive investor in such form or manner as Executivemay choose in his discretion, (ii) participate in various charitable efforts,and (iii) serve as a member of the Board of Directors of other corporationswhich are not competitors of Employer.

 

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# 2.             **Compensation and Benefits**.

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## (a)           As compensation for hisservices to Employer, Employer shall pay to Executive an annual base salary of$223,000 during the first 6-month period that this Agreement is in effect,payable in equal semimonthly payments in accordance with Employer’s regularpayroll policy for salaried employees (the **“Salary”**). Atthe end of the first six (6) months of employment the Executive shall receivean increase to his annual base salary of 10% from $223,000 to $245,300.  The Compensation Committee (the **“Compensation Committee”**) of the Board of Directors ofEmployer (the **“Board”**) shall perform an annualreview of the Executive’s Salary based on a review of Executive’s performanceof his duties prepared by Employer’s CEO and Employer’s other compensationpolicies. The Compensation Committee may, at its sole discretion, increase (butnot decrease) the Salary at any time, and from time to time.

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## (b)           Executive shall beeligible for additional cash compensation in the total amount of up to $20,000during the first seven (7) months after the Effective Date.  If earned, the additional cash compensationwould be payable in increments of $10,000 on November 30, 2007 and May 1,2008.  The additional cash compensationshall be earned and awarded based solely upon the CEO’s determination, in hisabsolute discretion, whether Executive met mutually agreed upon objectives.

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## (c)           In addition to theforegoing Salary, Executive shall be eligible for an annual incentive bonus (**“Incentive Bonus”**) based on criteria determined by theCompensation Committee, at its sole discretion. The Incentive Bonus shall be payable annually in cash, following thedate on which Employer’s Form 10-K for the previous fiscal year is filed withthe Securities and Exchange Commission, but in no event later than the ShortTerm Deferral Date as defined in Section 3.1; provided, however,that Executive shall not be eligible for an Incentive Bonus for fiscal years2007 and 2008. Executive be eligible for a partial bonus in 2008 based solelyupon the CEO’s determination in his absolute discretion.

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## (d)           Upon Executive’sfurnishing to Employer customary and reasonable documentary support (such asreceipts or paid bills) evidencing costs and expenses incurred by him in theperformance of his services and duties hereunder (including, withoutlimitation, travel and entertainment and cellular telephone expenses) andcontaining sufficient information to establish the amount, date, place and essentialcharacter of the expenditure, Executive shall be reimbursed for such costs andexpenses in accordance with Employer’s normal expense reimbursement policy.

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## (e)           In recognition ofExecutive’s intention to, and Employer’s desire that Executive will, participatein 40 hours each year of continuing professional education and certificationrequirements as a Certified Public Accountant, Employer shall reimburseExecutive for up to $5,000 per year for reasonable and properly documentedexpenses incurred by Executive for such continuing professional education.

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## (f)            Executive shall beentitled to participate in the medical (including hospitalization) and dentalinsurance plans, to the extent offered by Employer, and in amounts consistentwith Employer’s policy for other senior executive officers of Employer, with

 

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## premiums for all suchinsurance for Executive and his dependents to be paid by Employer.  In lieu of participating in Employer’s grouplife and long term disability insurance plans, Executive shall be entitled topayment of $1,100 per year to be used by Executive to maintain Executive’sexisting life and long term disability insurance plans.  Such payment shall be made annually, withinsixty (60) days of any year-end on which Executive remains employed byEmployer, but in any event not later than the Short Term Deferral Date.

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## (g)           Executive shall havethe right to participate in any additional compensation, benefit, bonus,pension, stock option, stock purchase, 401(k) or other plan or arrangement ofEmployer now or hereafter existing for the benefit of other senior executiveofficers of Employer, to the extent offered by Employer, and in amountsconsistent with the Employer’s policy.

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## (h)           Executive shall beentitled to vacation (but in no event less than three (3) weeks per year),holiday and other paid or unpaid leaves of absence consistent with Employer’snormal policies for other senior executive officers of Employer or as otherwiseapproved by the Board.

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## (i)            Executive shall beprovided a monthly car allowance in the amount of at least $600.00.

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## (j)            Employer shallpurchase and maintain in effect a directors’ and officers’ liability insurancepolicy with a minimum limit of liability of $10,000,000 and shall enter into anindemnification agreement with Executive upon terms and conditions mutuallyacceptable to Employer and Executive.

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# 3.             **Deferred Compensation**.

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## (a)           This Agreement is notintended to provide for any deferral of compensation payable during Executive’semployment pursuant to Section 409A of the Internal Revenue Code (the **“Code”**) and, accordingly, any compensation paid to Executivepursuant to this Agreement during Executive’s employment is intended to be paidnot later than the later of:  (i) thefifteenth (15th) day of the third (3rd) month followingthe Executive’s first (1st) taxable year in which such benefit is nolonger subject to a substantial risk of forfeiture, and (ii) the fifteenth (15th)day of the third (3rd) month following the first (1st)taxable year of Employer in which such benefit is no longer subject to asubstantial risk of forfeiture, as determined in accordance withSection 409A of the Code and any Treasury Regulations and other guidanceissued thereunder.  The date determinedunder this subsection is referred to as the **“Short-TermDeferral Date.”** Notwithstanding anything to the contrary herein, in the event that anycompensation paid pursuant to this Agreement during Executive’s employment isnot actually or constructively received by Executive on or before theShort-Term Deferral Date, to the extent such compensation, or any portionthereof, constitutes a deferral of compensation subject to CodeSection 409A, then, subject to Section 3(b), such benefitshall be paid upon Executive’s separation from service, with respect toEmployer and its affiliates within the meaning of Section 409A of theCode.

 

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## (b)           In the event thatExecutive is a “specified employee,” asdefined in Section 409A(a)(2)(B)(i) of the Code as of the date ofany separation from service with respect to Employer and its affiliates, nopayment of deferred compensation subject to Code Section 409A may be madeto Executive before the date that is six (6) months after the date ofseparation from service (or, if earlier, the date of death of the specifiedemployee), and, in such case, any payments shall be accumulated and paid on thefirst date of the seventh (7th) month following separation fromservice; provided, however, that any payment or portion thereofwhich is subject to an exemption for separation pay to specified employees asprovided under Treasury Regulation § 1.409A, or is subject to any otherexemption provided under Treasury Regulation § 1.409A allowing for paymentto a specified employee prior to the date that is six (6) months after the dateof separation from service, may be paid to Executive upon separation fromservice.

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# 4.             **Preservation of Business; Fiduciary Responsibility**.

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Executive shall use hisbest efforts to preserve the business and organization of Employer and topreserve the business relations of Employer. So long as Executive is employedby Employer, Executive shall observe and fulfill proper standards of fiduciaryresponsibility attendant upon his service and office.

 

# 5.             **No Specified Term; Employment at Will**.

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The employmentrelationship between Employer and Executive pursuant to this Agreement is notfor any specific term, but may be terminated with or without cause, by Employeror by Executive, at any time and for any reason, subject to the rights andobligations of Employer and Executive as set forth in this Agreement.  Any modification to the nature of the at-willemployment relationship between Employer and Executive must be made in writing,and must be signed by Executive and by Employer.

 

# 6.             **Termination**.

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Employer or Executive mayterminate Executive’s employment under this Agreement at any time, but only onthe following terms:

 

## (a)           Employer may terminateExecutive’s employment under this Agreement at any time for **“Due Cause”** (asdefined in Appendix I attached hereto and incorporated herein bythis reference) upon the good faith determination by the Board that Due Causeexists for the termination of the employment relationship.

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## (b)           If Executive isincapacitated by accident, sickness or otherwise so as to render Executiveeither:  (i)  unable to engage in any substantial gainfulactivity by reason of any medically determinable physical or mental impairmentthat can be expected to result in death or can be expected to last for acontinuous period of not less than twelve (12) months; or (ii) by reason of anymedically determinable physical or mental impairment that can be expected toresult in death or can be expected to last for a continuous period of not lessthan twelve (12) months is receiving income replacement benefits for a periodof not less than three (3) months under an accident and health plan coveringemployees of Employer; and such incapacity is confirmed by the U.S. SocialSecurity Administration or in accordance with a disability insurance programmaintained by Employer, Employer may terminate Executive’s employment

 

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## under this Agreement upongiving Executive or his legal representative written notice at least 30 daysprior to the termination date, subject to the provisions of Section 7(b).  Notwithstanding anything expressed or impliedabove to the contrary, Employer will fully comply with its obligations underthe Americans with Disabilities Act as well as any other applicable federal,state, or local law, regulation, or ordinance governing the protection ofqualified individuals with disabilities as well as Employer’s obligation toprovide reasonable accommodation thereunder.

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## (c)           This Agreement shallterminate immediately upon Executive’s death, subject to the provisions of Section 7(b).

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## (d)           Subject to theprovisions of Section 7(c), Employer may terminate Executive’semployment under this Agreement at any time for any reason whatsoever, evenwithout Due Cause, by giving a written notice of termination to Executive, inwhich case the employment relationship shall terminate immediately upon thegiving of the notice. If Employer terminates the employment of Executive other than(i) pursuant to Section 6(a) for Due Cause, (ii) due to incapacitypursuant to Section 6(b) or due to Executive’s death pursuant to Section 6(c),or (iii) Executive’s retirement, then the action by Employer, unless consentedto in writing by Executive, shall be deemed to be a constructive termination byEmployer of Executive’s employment (a **“Constructive Termination”**),and, in that event, Executive shall be entitled to receive the compensation setforth in Section 7(c).

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## (e)           Executive may terminatethis Agreement at any time within ninety (90) days of the occurrence of anyevent comprising “**Good Reason**” (asdefined in Appendix I attached hereto and incorporated herein bythis reference); provided, however, that Executive providesEmployer with written notice of the event or condition constituting Good Reason within thirty (30) days ofthe initial existence of such event or condition, and that Employer shall havea period of thirty (30) days to cure such event or condition and, in the eventthat Employer fails to cure such event or condition, Executive shall beentitled to receive the compensation set forth in Section 7(c).

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# 7.             **Effect of Termination**.

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## (a)           If the employmentrelationship is terminated (i) by Employer for Due Cause pursuant to Section 6(a),(ii) by Executive breaching this Agreement by refusing to continue hisemployment, or (iii) by Executive without Good Reason, then all compensationand benefits shall cease as of the date of termination, other than:(A) those benefits that are provided by retirement and benefit plans andprograms specifically adopted and approved by Employer for Executive that areearned and vested by the date of termination; (B) Executive’s pro rataannual Salary (as in effect as of the date of termination, payable in the manneras prescribed in the first sentence of Section 2(a) through thedate of termination; (C) any stock options which have vested as of thedate of termination pursuant to the terms of the agreement granting theoptions; and (D) accrued vacation as required by California law.

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## (b)           If Executive’semployment relationship is terminated due to Executive’s incapacity pursuant toSection 6(b) or due to Executive’s death pursuant to Section 6(c),Executive or Executive’s estate or legal representative, shall, subject to Section 3of this Agreement, be entitled to (i) those benefits that are provided byretirement and benefits plans and

 

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## programs specificallyadopted and approved by Employer for Executive that are earned and vested atthe date of termination, (ii) a prorated Incentive Bonus, payable in the manneras prescribed in the second sentence of Section 2(b) (to the extentExecutive would otherwise be eligible) for the fiscal year in which incapacityor death occurs, and (iii) a lump-sum cash payment, payable within ten (10)business days of separation from service due to death or disability, but in anyevent, not later than the Short-Term Deferral Date, in an amount equal to one(1) year of Executive’s then current annual Salary as set forth in Section2(a), which amount shall be net of all then applicable federal, state andlocal taxes payable by Executive relating to such payment (said payment takinginto consideration the full gross-up effect of additional taxes payable withrespect to tax payments).

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## (c)           In the event of atermination of this Agreement as a result of Constructive Termination, or byExecutive for Good Reason, then Employer shall, subject to Section 3of this Agreement:

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### (i)            pay to Executive onthe date of termination his Salary in effect as of the date of terminationthrough the end of the month during which the termination occurs plus creditfor any vacation earned but not taken;

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### (ii)           pay to Executive on thefirst business day following the expiration of the revocation period describedin Section 7(d) (provided Executive has not tendered his revocation),but in any event, not later than the Short-Term Deferral Date, as severance payan amount equal to one (1) times Executive’s then current annual Salary, whichamount shall be net of all then applicable federal, state and local taxespayable by Executive relating to such payment (said payment taking intoconsideration the full gross-up effect of additional taxes payable with respectto tax payments);

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### (iii)          pay to Executive theprorated Incentive Bonus, to the extent Executive would otherwise be eligiblefor any, for the fiscal year during which termination occurs, payable asprovided in Section 2(a); and

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### (iv)          maintain, at Employer’sexpense, in full force and effect, for Executive’s continued benefit, allmedical insurance to which Executive was entitled immediately prior to the dateof termination until the earliest of (i) eighteen (18) months or (ii) the dateor dates that Executive’s continued participation in Employer’s medical plan isnot possible under the terms of the plan (the earliest of (i) and (ii) isreferred to herein as the **“Benefits Date”**).If Employer’s medical insurance plan does not allow Executive’s continuedparticipation in the plan, then Employer will pay to Executive, in monthlyinstallments, from the date on which Executive’s participation in the medicalinsurance is prohibited until the date that is eighteen (18) months after thedate of termination, an amount equal to the monthly premium or premiums forCOBRA coverage with respect to Executive for the discontinued medicalinsurance; and

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### (v)           pay to Executive on thedate of termination a lump-sum cash payment of $1,650 to be used by Executiveto maintain for a period of eighteen

 

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### (18) months after the date of termination Executive’sexisting life insurance plan as provided for in Section 2(f).

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## (d)           Executive shall beentitled to the payments and benefits described in subsections 7(c)(ii) and(iv) only if Executive signs an appropriate separation agreement in a formacceptable to Employer, which includes a release of all claims against Employerto the fullest extent permitted by law, such agreement actually enters intoeffect following any revocation period required by law, and Executive compliesfully with any continuing obligations under this Agreement.

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## (e)           Executive shall not berequired to mitigate damages or the amount of any payment provided for underthis Agreement by seeking other employment or otherwise, nor shall the amountof any payment provided for under this Agreement be reduced by any compensationearned by Executive as the result of employment by another Employer after thedate of termination, or otherwise.

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## (f)            Except as expresslyprovided herein, the provisions of this Agreement, and any payment or benefitprovided for hereunder, shall not reduce any amounts otherwise payable, or inany way diminish Executive’s existing rights, or rights which would accrue solelyas a result of the passage of time, under any Employer Benefit Plan, employmentagreement or other contract, plan or arrangement.

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## (g)           The amount of anypayment provided under this Agreement shall not be reduced by reason of anypresent value calculation.

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## (h)           Upon termination ofthis Agreement, compensation and benefits shall be paid to the Executive as setforth in the applicable subsection of this Section 7 and stockgrants or options granted to Executive, if any, shall be governed by theprovisions of all stock grant or option agreements between Employer andExecutive. In the event of a termination of this Agreement by Executive forGood Reason, all other rights and benefits Executive may have under theemployee and/or executive benefit plans and arrangements of Employer generallyshall be determined in accordance with the terms and conditions of those plansand arrangements.

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# 8.             **Payment Upon Change in Control**.

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Immediately preceding theoccurrence of a **“Change in Control”**(asdefined in Appendix I attached hereto and incorporated herein bythis reference), Employer shall pay to Employee, in immediately availablefunds, an amount equal to one (1) times Executive’s then current annual Salary,which amount shall be net of all then applicable federal, state and local taxespayable by Executive relating to such payment (said payment taking intoconsideration the full gross-up effect of additional taxes payable with respectto tax payments).

 

# 9.             **Covenants of Confidentiality, Nondisclosure andNoncompetition**.

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## (a)           During the term of thisAgreement, Employer will provide to Executive certain confidential andproprietary information owned by Employer as more fully described below.Executive acknowledges that he occupies or will occupy a position of trust andconfidence with Employer, and that Employer would be irreparably damaged ifExecutive were

 

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## to breach the covenantsset forth in this Section 9(a). Accordingly, Executive agrees that he will not, without the priorwritten consent of Employer, at any time during the term of this Agreement orany time thereafter, except as may be required by competent legal authority oras required by Employer to be disclosed in the course of performing Executive’sduties under this Agreement for Employer, use or disclose to any person, firmor other legal entity, any confidential records, secrets or informationobtained by Executive during his employment hereunder related to Employer orany parent, subsidiary or affiliated person or entity (collectively, **“Confidential Information”**). Confidential Information shallinclude, without limitation, information about Employer’s Inventions (asdefined in Section 10(a), customer lists and product pricing, data,know-how, formulae, processes, ideas, past, current and planned productdevelopment, market studies, computer software and programs, database andnetwork technologies, strategic planning and risk management. Executiveacknowledges and agrees that all Confidential Information of Employer and/orits affiliates will be received in confidence and as a fiduciary of Employer.Executive will exercise utmost diligence to protect and guard the ConfidentialInformation.

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## (b)           Executive agrees thathe will not, without the express written consent of the Board, take with himupon the termination of this Agreement, any document or paper, or any photocopyor reproduction or duplication thereof, relating to any ConfidentialInformation.

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## (c)           Executive agrees thathe will, upon the termination of his employment, return all Employer’s propertyincluding but not limited to vehicles leased or owned by Employer, mobiletelephone, fuel card, personal computer, all documents, working papers,information whether stored on computer disc or otherwise, and all other recordsrelating to Employer and its business. Executive agrees that he will confirm in writing that he has compliedwith this clause, if requested to do so by Employer, within seven (7) days ofreceipt of such a request.

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## (d)           Executive agrees that, whileExecutive is employed with Employer, he will not, either directly orindirectly, 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 itsbusiness activities or solicit individuals or other entities that are customersor competitors of Employer.  Executivefurther agrees that, for a period of twenty-four (24) months after the date oftermination of this Agreement (the **“Restricted Period”**),Executive shall not use Employer’s trade secrets, either directly orindirectly, to compete in any way with the business of Employer and will notsolicit individuals or other entities that are customers or competitors ofEmployer during the six-month period immediately prior to the date oftermination of this Agreement, to terminate or change their contracts orbusiness relations with Employer. Executive also agrees that, for theRestricted Period, he will not, either directly or indirectly, solicit anyemployee of Employer to terminate his employment with Employer.

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## (e)           For purposes of this Section 9,**“Employer”** shall include any of itsparents, subsidiaries or any other entity in which it holds a 50% or greaterequity interest.

 

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# 10.           **Inventions**.

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## (a)           Any and all inventions,product, discoveries, improvements, processes, formulae, manufacturing methodsor techniques, designs or styles, software applications or programs(collectively, **“Inventions”**) made, developed orcreated by Executive, alone or in conjunction with others, during regular hoursof work or otherwise, during the term of Executive’s employment with Employerand for a period of two years thereafter that may be directly or indirectlyrelated to the business of, or tests being carried out by, Employer, or any ofits parents, subsidiaries, shall be promptly disclosed by Executive to Employerand shall be Employer’s exclusive property. The following provisions of theCalifornia Labor Code shall supplement this Section 10(a):

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SECTION 2870OF THE CALIFORNIA LABOR CODE

 

Application of ProvisionsProviding that Employee Shall Assign or Offer to Assign Rights in Invention toEmployer.

 

(a)           Any provision in an employmentagreement which provides that an employee shall assign, or offer to assign, anyof his or her rights in an invention to his or her employer shall not apply toan invention that the employee developed entirely on his or her own timewithout using employer’s equipment, supplies, facilities, or trade secretinformation except for those inventions that either:

 

(1)             Relate at the time ofconception or reduction to practice of the invention to employer’s business, oractual or demonstrably anticipated research or development of employer; or

 

(2)             Result from any workperformed by the employee for employer.

 

(b)           To the extent aprovision in an employment agreement purports to require an employee to assignan invention otherwise excluded from being required to be assigned undersubdivision (a), the provision is against the public policy of this state andis unenforceable.

 

## (b)           Executive will, uponEmployer’s request and without additional compensation, execute any documentsnecessary or advisable in the opinion of Employer’s legal counsel to direct theissuance of patents to Employer with respect to Inventions that are to beEmployer’s exclusive property under this Section 10 or to vest inEmployer title to the Inventions; the expense of securing any patent, however,shall be borne by Employer.

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## (c)           Executive will hold forEmployer’s sole benefit any Invention that is to be Employer’s exclusiveproperty under this Section 10 for which no patent is issued.

 

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# 11.           **No Violation**.

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Executive represents thathe is not bound by any Agreement with any former employer or other party thatwould be violated by Executive’s employment by Employer.

 

# 12.           **Injunctive Relief**.

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Executive acknowledgesthat the breach, or threatened breach, by Executive of the provisions of thisAgreement shall cause irreparable harm to Employer, which harm cannot be fullyredressed by the payment of damages to Employer. Accordingly, Employer shall beentitled, in addition to any other right or remedy it may have at law or inequity, to seek an injunction or restraining Executive from any violation orthreatened violation of this Agreement.

 

# 13.           **Dispute Resolution**.

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Subject to Section 12,all claims, disputes and other matters in controversy (**“dispute”**)arising, directly or indirectly out of or related to this Agreement, or thebreach thereof, whether contractual or noncontractual, and whether during theterm or after the termination of this Agreement, shall be resolved exclusivelyaccording to the procedures set forth in this Section 13, and notthrough resort to any judicial proceedings.

 

## (a)           Neither party shallcommence an arbitration proceeding pursuant to the provisions of Section 13(b)unless that party first gives a written notice (a **“DisputeNotice”**) to the other party setting forth the nature of the dispute.The parties shall attempt in good faith to resolve the dispute by mediationunder the American Arbitration Association Commercial Mediation Rules in effecton the date of the Dispute Notice. If the parties cannot agree on the selectionof a mediator within twenty (20) days after delivery of the Dispute Notice, themediator will be selected by the American Arbitration Association. If thedispute has not been resolved by mediation within sixty (60) days afterdelivery of the Dispute Notice, then the dispute shall be determined byarbitration in accordance with the provisions below.

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## (b)           Any dispute that is notsettled by mediation as provided in Section 13(a) shall be resolvedby arbitration in Orange County, California, before a single arbitratorappointed by the American Arbitration Association or its successor. Thedetermination of the arbitrator shall be final and absolute. The arbitratorshall be governed by the duly promulgated rules and regulations of the AmericanArbitration Association or its successor then in effect, and the pertinentprovisions of the laws of the State of California relating to arbitration. Thedecision of the arbitrator may be entered as a final judgment in any court of theState of California or elsewhere. The prevailing party in any such arbitrationshall also be entitled to recover reasonable attorneys’, accountants’ andexperts’ fees and costs of suit in addition to any other relief awarded theprevailing party.

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# 14.           **Miscellaneous**.

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## (a)           If any provisionscontained in this Agreement is for any reason held to be totally invalid orunenforceable, such provision will be fully severable, and in lieu of suchinvalid or unenforceable provision there will be added automatically as part ofthis Agreement a provision as similar in terms as may be valid and enforceable.

 

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## (b)           All notices and othercommunications required or permitted hereunder or necessary or convenience inconnection herewith shall be in writing and shall be deemed to have been givenwhen mailed by registered mail or certified mail, return receipt requested orhand delivered, as follows (provided that notice of change of address shall bedeemed given only when received):

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| If to Employer:  |   | EMRISE Corporation                  |
|------------------|--------|-------------------------------------|
|             |   | 9485 Haven Avenue                   |
|             |   | Rancho Cucamonga, CA  91730         |
|             |   | Attention: Chief  Executive Officer |
|             |   |                                |
| If to Executive: |   | John Donovan                        |
|             |   | 2671 Swift Court                    |
|             |   | La Verne, CA 91750                  |

 

or to such other names oraddresses as Employer or Executive, as the case may be, shall designate bynotice to the other party hereto in the manner specified in this Section 13(b).

 

## (c)           This Agreement shall bebinding upon and inure to the benefit of Employer, its successors, legalrepresentatives and assigns, and Executive, his heirs, executors,administrators, representatives, legatees and permitted assigns. Executiveagrees that his rights and obligations hereunder are personal to him and maynot be assigned without the express written consent of Employer. If Executiveshould die while any amounts are due to him pursuant to this Agreement, allsuch 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 requireany successor or assign (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business and/orassets of Employer, by Agreement in form and substance satisfactory toExecutive and his legal counsel, expressly, absolutely and unconditionally toassume and agree to perform this Agreement in the same manner and to the sameextent that Employer would be required to perform each of them if no suchsuccession or assignment had taken place. Any failure of Employer to obtainsuch agreement prior to the effectiveness of any such succession or assignmentshall be a material breach of this Agreement and shall entitle Executive toterminate Executive’s employment for Good Reason. As used in this Agreement, **“Employer”** means EMRISE Corporation and any successor orassign to its business and/or assets which executes and delivers the Agreementprovided for in this Section or which otherwise becomes bound by all theterms and provisions of this Agreement by operation of law. If at any timeduring the term of this Agreement Executive is employed by any company amajority of the voting securities of which is then owned by Employer, “Employer” as used in this Agreementshall in addition include that subsidiary company. In that event, Employeragrees that it shall pay or shall cause the subsidiary company to pay anyamounts owed to Executive pursuant to this Agreement.

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## (d)           This Agreement replacesand merges all previous agreements and discussions relating to the same or similarsubject matters between Executive and Employer with respect to the subjectmatter of this Agreement (other than any option agreement dated prior to theEffective Date between Executive and Employer), including without limitationthat certain Executive Employment dated effective as of May 16, 2007 betweenEmployer and Executive.

 

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## This Agreement may not bemodified in any respect by any verbal statement, representation or agreementmade by any employee, officer, or representative of Employer or by any writtenagreement unless signed by an officer of Employer who is expressly authorizedby Employer to execute that document.

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## (e)           The laws of the Stateof California will govern the interpretation, validity and effect of thisAgreement without regard to principles of conflicts of law, the place ofexecution or the place for performance thereof.

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## (f)            Executive and Employershall execute and deliver any and all additional instruments and agreementsthat may be necessary or proper to carry out the purposes of this Agreement.

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## (g)           The descriptiveheadings of the several sections of this Agreement are inserted for convenienceonly and do not constitute a party of this Agreement.

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## (h)           This Agreement may beexecuted in one or more counterparts, all of which shall be considered one andthe same Agreement.

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## (i)            Executive acknowledgesthat Executive has had the opportunity to read this Agreement and discuss itwith advisors and legal counsel, if Executive has so chosen. Executive alsoacknowledges the importance of this Agreement and that Employer is relying onthis Agreement in entering into an employment relationship with Executive.

##  

The undersigned,intending to be legally bound, have executed this Agreement effective as of thedate first written above.

 
|                   |   | EMRISE CORPORATION |
|------------------------|--------|--------------------|
|                   |   |               |
|                   |   |               |
| Date: November 1, 2007 |   | By:                |  /s/  Carmine T. Oliva |
|                   |   |               | Carmine T. Oliva, |
|                   |   |               | President and Chief  Executive Officer |
|                   |   |               |
|                   |   |               |
| Date: November 1, 2007 |   |               |  /s/  D. John Donovan |
|                   |   |               | D. JOHN DONOVAN |

 

 

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APPENDIX I

 

**Additional Definitions**

 

For purposes of thisAgreement, the following additional capitalized terms shall have the respectivedefinitions set forth below:

 

**Benefit Plan**.The term **“Benefit Plan”** means any benefit planor arrangement (including, without limitation, Employer’s profit sharing orstock option or stock incentive plans, if any, and medical, disability and lifeinsurance plans) in which Executive is participating (or any other plansproviding Executive with substantially similar benefits).

 

**Change in Control**.  The term **“Changein Control”** means the occurrence of any of the following events:

 

(a)           the acquisition,directly or indirectly, by any “person” or “group” (as those terms are definedin Sections 3(a)(9), 13(d), and 14(d) of the Exchange Act and the rulesthereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3under the Exchange Act) of securities entitled to vote generally in theelection of directors (“voting securities”) of Employer that represent 40% or more of the combined votingpower of Employer’s then outstanding voting securities or 50% or more of thecombined Fair Market Value of Employer’s then outstanding stock, other than:

 

(i)            an acquisition by a trusteeor other fiduciary holding securities under any employee benefit plan (orrelated trust) sponsored or maintained by Employer or any person controlled byEmployer or by any employee benefit plan (or related trust) sponsored ormaintained by Employer or any person controlled by Employer, or

 

(ii)           an acquisition ofvoting securities by Employer or a corporation owned, directly or indirectly,by the stockholders of Employer in substantially the same proportions as theirownership of the stock of Employer.

 

provided,however, that notwithstanding the foregoing, an acquisition of Employer’ssecurities by Employer that (x) causes Employer’s voting securitiesbeneficially owned by a person or group to represent 40% or more of the combined voting power of Employer’s thenoutstanding voting securities or (y) cause Employer’s stock beneficially ownedby a person or group to represent 50% or more of the combined Fair Market Valueof Employer’s then outstanding stock shall not be considered an acquisition byany person or group for purposes of this subsection (a); provided, however,that if a person or group shall become the beneficial owner of 40% or more of the combined votingpower of Employer’s then outstanding voting securities or 50% or more of thecombined Fair Market Value of Employer’s then outstanding stock by reason ofshare acquisitions by Employer as described above and shall, after such shareacquisitions by Employer, become the beneficial owner of any additionalsecurities of Employer, then such acquisition shall constitute a Change inControl;

 

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(b)           the date a majority ofmembers of the Board is replaced during any 12-month period by directors whoseappointment or election is not endorsed by a majority of the members of theBoard before the date of the appointment or election, but excluding, for thispurpose, any such individual whose initial assumption of office occurs as aresult of an actual or threatened election contest with respect to the electionor removal of directors or other actual or threatened solicitation of proxiesor consents by or on behalf of a person other than the Board;

 

(c)           the acquisition by any “person”or “group” (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) ofthe Exchange Act and the rules thereunder), or combined acquisitions during the12-month period ending on the date of the most recent acquisition by suchperson or group, of ownership of assets from Employer that have a total grossfair market value equal to or more than 40% of the total gross fair marketvalue of all of the assets of the corporation immediately before suchacquisition; and

 

(d)           stockholder approval ofa complete liquidation or dissolution of Employer.

 

For purposes ofsubsection (a) above, the calculation of voting power shall be made as if thedate of the acquisition were a record date for a vote of Employer’sstockholders, and for purposes of subsection (c) above, the calculation ofvoting power shall be made as if the date of the consummation of thetransaction were a record date for a vote of Employer’s stockholders.

 

Notwithstanding theforegoing, there is no Change in Control event when there is a transfer to anentity that is controlled by the stockholders of the Company immediately afterthe transfer.  A transfer of assets byEmployer is not treated as a Change in Control if the assets are transferredto:

 

(i)            a stockholder ofEmployer (immediately before the asset transfer) in exchange for or withrespect to the stockholders’ stock;

 

(ii)           an entity, 50% or moreof the total value or voting power of which is owned, directly or indirectly,by Employer;

 

(iii)          a person or group thatowns, directly or indirectly, 50% or more of the total value or voting power ofall the outstanding stock of Employer; or

 

(iv)          an entity, at least 50%of the total value or voting power of which is owned, directly or indirectly,by a person or group described in (iii) above.

 

**Due Cause**.The term **“Due Cause”** means any of the followingevents:

 

(a)           any intentionalmisapplication by Executive of Employer’s funds or other material assets, orany other act of dishonesty injurious to Employer committed by Executive; or

 

(b)           Executive’s convictionof (i) a felony or (ii) a crime involving moral turpitude; or

 

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(c)           Executive’s use orpossession of any controlled substance or chronic abuse of alcoholic beverages,which use or possession the Board reasonably determines renders Executive unfitto serve in his capacity as a senior executive of Employer; or

 

(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 hisduties or comply with the reasonable directions of the Board.

 

Notwithstanding anythingin the foregoing subsections (c) or (d) to the contrary, Employer shall notterminate Executive under subsections (c) or (d) unless the Board firstprovides Executive with a written memorandum describing in detail how hisperformance hereunder is not satisfactory and Executive is given a reasonableperiod of time (not less than thirty (30) days) to remedy the unsatisfactoryperformance related by the Board to Executive in that memorandum. Adetermination of whether Executive has satisfactorily remedied theunsatisfactory performance shall be promptly made by a majority of thedisinterested directors of the Board at the end of the period provided toExecutive for remedy and their determination shall be final.

 

**ExchangeAct**.  The term “**Exchange Act**” means the Securities ExchangeAct of 1934, as amended.

 

**FairMarket-Value**.  Theterm “**Fair Market Value**” of ashare of Employer’s common stock as of a given date shall be: (a) if the commonstock is listed or admitted for trading on any United States nationalsecurities exchange and/or is quoted on a system of automated dissemination ofquotations of securities prices in common use, the last reported sale price ofa share of common stock on the principal exchange or system on which shares ofcommon stock are trading on such date (or if no sale occurred on such date,then on the next preceding date on which a trade occurred); provided, however,that if the common stock is not a last sale reported security, then the FairMarket Value shall be the average of the closing high bid and low askedquotations for a share of common stock on such principal exchange or system onsuch date (or if bid and asked prices were not both reported on such date, thenon the next preceding date on which bid and asked prices were both reported); providedfurther, that the sale, bid and asked prices referred to in this clause(a) shall be as reported in a newspaper of general circulation or by such othersource as the Board deems reliable; or (b) if the common stock is not listed oradmitted for trading on such an exchange or system on such date, the FairMarket Value of a share of common stock as established by the Board acting ingood faith, taking into account all material information available with respectto the value of a share of common stock, including, without limitation, thevalue of the tangible and intangible assets of Employer, the present value ofits anticipated future cash flows, the market value of the stock or equityinterests in other entities engaged in substantially the same business, recentarm’s length transactions involving the sale of common stock, and otherrelevant factors such as control premiums or discounts for lack ofmarketability.

* *

**Good Reason**.The term **“Good Reason”** as used in this Agreementshall mean any of the following which occur without Executive’s written consentand provided that Executive notifies Employer’s Board****in writing ofthe event or condition constituting “GoodReason” within thirty (30) days of the initial existence of such eventor condition, that Executive intends

 

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to terminate hisemployment for such Good Reason, specifying the Good Reason, and Employer failsto remedy the specified event or condition within thirty (30) days afterreceipt of such notice:

 

(a)           the material diminutionin Executive’s authority, duties, or responsibilities; a material diminution inExecutive’s titles or offices; any removal of Executive from or any failure toreelect Executive to any of his positions as an officer, except in connectionwith the termination of his employment for disability; Retirement; Executive’sdeath; or by Executive other than for Good Reason;

 

(b)           a purported reductionby Employer in Executive’s base salary amounting to a material diminution insuch salary to an amount less than the greater of (i) the base salary as ineffect on the date hereof or (ii) 10% below the base salary in effect at thetime of the purported reduction; or

 

(c)           a failure by Employerto comply with any material provision resulting in a material breach byEmployer of this Agreement which has not been cured within 30 days after noticeof noncompliance has been given by Executive to Employer, or if the failure isnot capable of being cured in that time, a cure shall not have been diligentlyinitiated by Employer within the 30 day period;

 

provided,however, that any of the foregoing actions shall not be considered to beGood Reason if the action is undertaken by Employer as a termination for DueCause.

 

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