Exhibit
10.1


February 22, 2007


Mr. Abbas Mohaddes

3432 Seaglen Drive

Rancho Palos Verdes, CA 90275


Dear Mr. Mohaddes:


I am pleased to offer you a promotion to the position of Chief
Executive Officer (CEO) of Iteris, Inc. 
You will assume the duties of this position upon your acceptance of this
letter, but in no case later than February 28, 2007.


Your full-time starting annual base salary will be
$350,000 ($29,167 per month), paid on a bi-weekly basis and subject to normal
withholding.


In additional to your annual salary, beginning in
FY08, you will be eligible to receive an annual bonus which will pay $150,000
upon the achievement of a set of annual performance targets to be agreed upon
between you and the Compensation Committee of the Board of Directors.  The structure of this Bonus Plan will be
similar to the Iteris Executive Bonus Plan that is currently in place for
senior executives of the company.


Your total on-target annual earnings for the first
year will, therefore, be $500,000.


We would also like to extend to you an opportunity for
additional participation in the Company’s 1997 Stock Incentive Plan (the “Plan”).  Under the terms of this Plan, you will as
soon as reasonably practicable after your start date receive an option to
purchase 100,000 shares of the Company’s common stock subject to the normal
vesting provision of the Plan.  The
exercise price of your options will be the fair market value of the stock at
the time these options are granted by the Board of Directors.


Additionally, we intend to issue you an option to
purchase additional 200,000 shares of the Company’s common stock as soon as
practical after the stockholder approval of a new option plan for the
Company.  We will propose the new option
plan to stockholders at the 2007 Annual Meeting of the Company.


As you know, as an Iteris associate, you are eligible
to participate in an attractive benefits program that includes the following:


·                  Health insurance
coverage including medical, dental and vision


·                  Group life and
disability insurance


·                  Paid holidays
and Christmas shutdown period


·                  Personal time
off (PTO) of 25 days per year with the time accrued each pay period (earned at
7.7 hours each pay period).













·                  Educational
reimbursement plan


·                  Computer
purchase assistance


·                  401(k) Plan (at
the beginning of the next calendar quarter): 
Through payroll deduction, you can make pre-tax contributions up to the
maximum allowed by the Internal Revenue Service.  The Company will match 50% of your
investment, up to 6% of your salary, on any of 13 investment choices.  This plan vests at 33 1/3% each year for
amounts contributed by the Company.


You agree that you will perform your duties faithfully
and to the best of your abilities, and you agree to devote your full business
time and effort to the performance of your duties hereunder.  This offer is, therefore, contingent upon the
resolution of your ownership of Crain in a manner that is acceptable to the
Iteris Board of Directors.


Please confirm your acceptance of this offer by
signing and returning one copy of this letter. 
This will indicate your acceptance of our offer and confirm your start
date in this new position.  This offer
letter, the Company’s Non-competition Agreement, and the Iteris 1997 Stock
Incentive Plan set forth the terms of your employment with the Company and
supersede any and all prior representation or agreements, whether written or
oral.  This letter may only be modified
by a written agreement signed by you and the Chairman of the Board of Directors
or his designated representative.  Any waiver
of this right must be in writing. 
California Law will govern this agreement.


This letter does not constitute a guarantee or a
contract of continued employment.  Your
employment with Iteris, Inc. shall be at-will employment.  That means that either you or the Company may
terminate the employment relationship immediately if with cause or upon fifteen
(15) days notice if without cause.


For a period of three years from your acceptance of
this promotion, should your employment at Iteris, Inc. be terminated for any
reason except for a termination for cause (as defined in Attachment A), you
shall receive salary continuation payments consisting of the monthly rate of
your then current base salary for a period of twelve (12) months.  In addition, you shall be entitled at the end
of that continuation period to receive a payment in lieu of bonus of 50% of
your then current on-target bonus amount.


Your employment will also terminate if you die or if
you are unable to perform your duties as a result of a physical or mental
disability.  In the event of such a
termination, you or your estate shall be paid all compensation, including
bonuses and benefits earned through the date of the termination, and you will
receive a one-year acceleration of the option vesting provided for in the
Iteris 1997 Stock Incentive Plan. 
Additionally, in these cases, you or your estate will qualify for the
benefits provided by the Iteris Group Life Insurance plan or the Iteris Group
Long Term Disability Insurance plan as appropriate.


Please be advised that this offer letter will expire
on February 28, 2007.



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Abbas, I am tremendously enthusiastic that you can
bring critical skills, experience and leadership to these new responsibilities
at Iteris.  I am pleased by the prospect
of your leadership of the Iteris team, and I am confident that you will play a
substantial role in the Company’s success over the coming years.


	
  Sincerely,

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  /S/ KEVIN C. DALY

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kevin C. Daly

  	
   

  	
   

  	
   

  
	
  Chairman, Compensation Committee

  	
   

  	
   

  	
   

  
	
  Board of Directors

  	
   

  	
   

  	
   

  
	
  Iteris, Inc.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCEPTED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /S/ ABBAS MOHADDES

  	
   

  	
                 2/28/07

  	
   

  
	
  Abbas Mohaddes

  	
   

  	
                 Date

  	
   

  



 



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ATTACHMENT
A - TERMINATION FOR CAUSE


Iteris shall have the right to immediately terminate
your employment by written notice to you upon a good faith finding by Iteris or
its Board of Directors, in its reasonable judgment, of any of the following
occurrences:


1.                                       your
conviction of (a) a felony, or (b) another serious crime involving material
harm to the standing or reputation of Iteris;


2.                                       your
misconduct or negligence in the performance of your duties for Iteris which
causes material harm to Iteris;


3.                                       your
intentional conduct bringing Iteris into public disgrace or disrepute,
including, but not limited to, dishonesty, fraud, material and deliberate
injury or attempted injury, in each case related to Iteris or its business;


4.                                       your
material breach of any of the terms or conditions of this Agreement or the
Non-competition Agreement which, if curable, is not cured to Iteris’s
reasonable satisfaction within fifteen (15) days (or such other time period as
the parties may mutually agree in writing) of written notice thereof; or


5.                                       your
failure to accomplish one of the following two courses of action within ninety
(90) day of your acceptance of the position of CEO:


a.                                       enter
into a binding contract to dispose of your interest in Crain, Inc. to an
independent third party, or


b.                                      enter
into a binding contract under which Iteris, Inc. will acquire the assets of
Crain, Inc. for substantially the same price at which you acquired Crain, Inc
in September 2006.



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