**Exhibit 10.2**

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**EMPLOYMENT AGREEMENT**

 

THIS EMPLOYMENT AGREEMENT, made and entered into as of November 6,2003, between Aeroflex Incorporated, a Delaware corporation, with its principaloffice located at 35 South Service Road, Plainview, NY  11803 (together with its successors andassigns permitted under this Agreement, the “Company”), and Carl Caruso, whoresides at 5 Flamingo Drive, Smithtown, NY 11787 (the “Employee”).

 

**W I T N E S S E T H**

 

WHEREAS,  the Company and theEmployee are parties to an employment agreement dated February 5,1997,  the terms of which were amendedon November 17, 1998 and November 18, 1999;

 

WHEREAS, the Company has determined that it is in the best interests ofthe Company and its shareholders to enter into an employment agreement amendingand restating all prior agreements between the Company and the Employee andsetting forth the obligations and duties of both the Company and the Employee(this “Agreement”); and

 

WHEREAS, the Company wishes to assure itself of the continued servicesof the Employee for the period hereinafter provided, and the Employee iswilling to be employed by the Company for said period, upon the terms andconditions provided in this Agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenantscontained herein and for other good and valuable consideration, the receipt ofwhich is mutually acknowledged, the Company and the Employee (individually a“Party” and together the “Parties”) agree as follows:

 

1.  DEFINITIONS.

 

(a)  “Base Salary” shall meanthe annual salary to which the Employee is entitled pursuant to Section 3below.

 

(b)  “Beneficiary” shall meanthe person or persons named by the Employee pursuant to Section 21 belowor, in the event that no such person is named or survives the Employee, hisestate.

 

(c)  “Board” shall mean theBoard of Directors of the Company.

 

(d)  “Bonus” shall mean anybonus to which the Employee is entitled pursuant to Section 4 below.

 

(e)  “Cause” shall mean:

 

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(i)  the Employee’s conviction of a felony involvingmoral turpitude,

 

(ii)  the Employee’s willful gross misconduct incarrying out his duties under this Agreement, or

 

(iii)  a breach by the Employee of the provisionsof Section 9 or Section 10 below.

 

(f)  “Change in Control” shallmean:

 

(i)  a change in control as such term ispresently defined in Regulation 240.12b-2 under the Securities Exchange Act of1934 (“Exchange Act”);

 

(ii)  if during the Term of Employment any“person” (as such term is used in Section 13(d) and 14(d) of the ExchangeAct) other than the Company or any person who on the date of this Agreement isa director or officer of the Company, becomes the “beneficial owner” (asdefined in Rule 13(d)-3 under the Exchange Act), directly or indirectly, ofsecurities of the Company representing 20% of the voting power of the Company’sthen outstanding securities; or

 

(iii)  if during the Term of Employment individualswho at the beginning of such period constitute the Board cease for any reasonother than death, disability or retirement to constitute at least a majoritythereof.

 

(g)  “Compensation Committee”shall mean the Compensation Committee of the Board.

 

(h)  “Disability” shall mean theillness or other mental or physical disability of the Employee resulting in hisfailure to perform substantially his duties under this Agreement for a periodof six or more consecutive months or an aggregate of nine months in any12-month period.

 

(i)  “Fiscal Year” shall meanthe fiscal year of the Company, which is the 12-month period beginning eachJuly 1 and ending on the next succeeding June 30.

 

(j)  “Good Reason” shall mean:

 

(i)  reduction in the Employee’s Base Salary,

 

(ii)  the loss by the Employee of his position,

 

(iii)  a significant diminution of the Employee’sduties or responsibilities or the assignment to him of duties orresponsibilities inconsistent with his position,

 

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(iv)  a material reduction in any plan or programof the Company in which the Employee participates unless such reduction affectsthe senior management of the Company generally, or

 

(v)  the Employee must, in carrying out hisduties and responsibilities under this Agreement, spend significant timeoutside Long Island or New York City.

 

(k)  “Spouse” shall mean, duringthe Term of Employment, the woman who as of the relevant date is legallymarried to the Employee.

 

(l)  “Term of Employment” or“Term”  shall mean the period specifiedin Section 2(b) below.

 

2.  TERM OF EMPLOYMENT,POSITIONS AND DUTIES.

 

(a)  Employment ofEmployee.  The Company hereby employsthe Employee, and the Employee hereby accepts employment with the Company, inthe position and with the duties and responsibilities set forth below, and uponsuch other terms and conditions as are hereinafter stated.

 

(b)  Term of Employment.  The Term of Employment shall commence on thedate above written, and shall terminate on the third anniversary subsequent tosaid date and, unless either Party gives six (6) months prior written notice tothe other that it does not want the Term to continue, the Term of Employmentshall thereafter automatically extend for successive periods of one year.

 

(c)  Title and Duties.  Until the date of termination of hisemployment hereunder, the Employee shall be employed as an executive officer ofthe Company.  If the Board so requests,the Employee shall serve as a member of the board of a subsidiary or affiliateof the Company.

 

(d)  Time and Effort.  The Employee agrees to devote his fullbusiness time and attention and his best efforts and abilities to the affairsof the Company.  Nothing shall precludethe Employee from (i) serving on the boards of a reasonable number of othercorporations, trade associations and/or charitable organizations, (ii) engagingin charitable activities and community affairs or (iii) managing his personalinvestments and affairs; provided, however, that such activities do notmaterially interfere with the proper performance of his duties andresponsibilities specified in Section 2(c) above.

 

3.  BASE SALARY.

 

(a)  The Employee shall receivefrom the Company an initial annual Base Salary, payable in accordance with theregular payroll practices of the Company, of $238,139.  During the Term of Employment, theCompensation Committee shall review the Base Salary no less often than annuallyfor increase as of each July 1 beginning with July 1, 2004; provided,however, that increases shall not be less than the increases in the ConsumerPrice Index for the New York and Northeastern New Jersey Region,

 

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as published by the UnitedStates Department of Labor, Bureau of Labor Statistics using June 2003 asthe basedate, determined and payable as provided in Section 3(b) below.

 

(b) The cost-of-living adjustment (COLA) with respect to the Employee’sBase Salary shall be made annually as follows:

 

The first calculation shall be made on or before September 1,2004, with respect to the period July 1, 2003 through June 30, 2004with a lump-sum payment for the COLA being made as soon as practicable.  The same procedure shall be followed eachyear thereafter with respect to the period commencing the July 1 of thepreceding year through June 30 of the year in which the calculation isbeing made.  If the Employee’semployment shall terminate during any annual period referred to in thisSection 3(b), then the cost-of-living increment provided for herein shallbe prorated accordingly.

 

4.  BONUSES.

 

During the Term of Employment, the Company may pay the Employee bonusesas determined by the Board.

 

5.  STOCK OPTIONS.

 

During the Term of Employment, the Employee shall be eligible toreceive stock option grants and similar awards under existing and future plansor programs of the Company adopted and administered by the Compensation Committeeand approved by shareholders.

 

6.  EXPENSES AND EXPENSEREIMBURSEMENT.

 

During the Term of Employment, the Employee shall be entitled to promptreimbursement by the Company for all reasonable out-of-pocket expenses incurredby him in performing services under this Agreement, upon his submission of suchaccounts and records as may be required by Company policy. In addition,Employee shall be entitled to a car allowance in the amount of $1,150 permonth.

 

7.  EMPLOYEE BENEFIT PLANS ANDPROGRAMS.

 

The Employee shall participate in all employee benefit plans andprograms for which he is eligible and which are made available to the Company’sexecutive officers and other employees generally, as such plans or programs maybe in effect from time to time, excluding the Company’s Supplemental ExecutiveRetirement Plan but including, without limitation, pension and other retirementplan, profit-sharing plans, savings and similar plans, group life insurance,accidental death and dismemberment insurance, travel accident insurance,hospitalization insurance, surgical insurance, medical insurance, dentalinsurance, short-term and long-term disability insurance, sick leave (includingsalary continuation arrangements), vacations, holidays and any other employeebenefit plans or programs that may be sponsored by the

 

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Company from time to time,including any plans that supplement the foregoing types of plans, whetherfunded or unfunded.

 

8.  TERMINATION OF EMPLOYMENT.

 

(a)  General.  Except as otherwise provided in thisAgreement, in the event of termination of the Employee’s employment under thisAgreement, he, his dependents or his Beneficiary, as may be the case, shall beentitled to receive benefits under the Company’s employee benefit plansdescribed in Section 7 above, in accordance with the applicable terms andconditions of each plan, and reimbursement of any business expenses incurred bythe Employee but not yet paid to him.

 

(b)  Termination Due toDeath.  In the event that the Employee’semployment is terminated due to his death, his Beneficiary shall be entitled tothe sum of (i) 50% of the Employee’s annual Base Salary, at the rate in effecton the date of his death, for the greater of (A) the balance of the Term ofEmployment at the time of such termination or (B) one year; and (ii) any Bonuspreviously awarded but not yet paid to him, payable in accordance with theCompany’s regular payroll practices.

 

(c)  Termination Due toDisability.  In the event of Disability,the Company or the Employee may terminate the Employee’s employment.  If the Employee’s employment is terminateddue to Disability, he shall be entitled to the benefits described in 8(b)above.

 

(d)  Termination by the Companyfor Cause.  In the event that theEmployee’s employment is terminated for Cause, he shall be entitled to:

 

(i)  his Base Salary through the date oftermination of his employment for Cause, and

 

(ii)  any Bonus awarded but not yet paid to him.

 

The Employee shall be permitted to respond and defend himself beforethe Board or a committee thereof within a reasonable time after writtennotification of any proposed termination of his employment for Cause underclauses (ii) and (iii) of Section 1(e) above.

 

(e)  Termination Without Cause.

 

(i)  Termination Without Cause shall mean:

 

(A)  termination of the Employee’s employment bythe Company other than due to death or Disability or for Cause, or

 

(B)  termination by the Employee for Good Reason.

 

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(ii)  The Employee may not terminate hisemployment for Good Reason unless:

 

(A)  he has delivered a written notice to theBoard within 12 months of his having actual knowledge of one of the events,described in Section 1(j) above, providing a basis for Good Reason,stating which one of those events has occurred;

 

(B)  within 30 days of the delivery of thenotice, the Company has not remedied such event and provided him with a writtennotice of such remedy, and

 

(C)  in the event the Company has not remediedsuch event as provided in clause (B) above, the Employee notifies the Companyin writing that he is terminating his employment.  The failure of the Employee to terminate for Good Reason as toany one event described in Section 1(j) above shall not affect hisentitlement to terminate for Good Reason as to any other such event.

 

(iii)  In the event of Termination Without Cause,the Employee shall be entitled to receive any Bonus awarded but not yet paid tohim, and, for the greater of (x) remainder of the Term of Employment at thetime of termination or (y) one year:

 

(A)  Base Salary at the rate in effect on thedate of his termination, and

 

(B) benefitsunder any employee benefit plans of the Company in which he participated or, asto any plans in which his continued participation is precluded, the after-taxcost to the Employee of equivalent benefits.

 

(f)  Termination FollowingChange in Control.  In the event thereshall be a Change in Control of the Company or of any person directly or indirectlypresently controlling the Company, the Employee may, within six months of hisbecoming aware of such event, terminate his employment with the Company.  Upon such termination, the Employee shallreceive immediately in a lump sum an amount equal to three times the sum of (i)his annual Base Salary and (ii) the amount of any Bonus payable to him for thelast completed fiscal year less $100, but in no event an amount greater than isdeductible under Section 280G of the Internal Revenue Code of 1986, asamended, such amount to be determined by the Company’s independent auditors.

 

(g)  Voluntary Termination bythe Employee.  The Employee shall havethe right, upon 90 days’ written notice to the Company, voluntarily toterminate his employment, in which event the Employee’s entitlements shall bethe same as if he had been terminated by the Company for Cause, as provided inSection 8(d) above.

 

(h) Termination Due to Non-Renewal. In the event that the Employee’semployment is terminated due to non-renewal by the Company in accordance withSection 2(b) hereof, the Employee

 

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shall be entitled to receive anamount equal to his base salary for a twelve (12) month period payable inaccordance with the normal payroll practices of the Company.

 

(i)  No Mitigation;  No Offset. In the event of termination of the Employee’s employment under thisSection 8, he shall be under no obligation to seek other employment or tooffset or repay any amounts that he receives under this Agreement by anypayments that he receives from a subsequent employer.

 

(i)  Nature of Payments.  Any amounts due under this Section 8are in the nature of severance payments or liquidated damages or both, andshall fully compensate the Employee and his dependents or Beneficiary, as thecase may be, for any and all direct damages and consequential damages that anyof them may suffer as a result of termination of the Employee’s employment, andthey are not in the nature of a penalty.

 

9.  CONFIDENTIAL INFORMATION.

 

(a)   The Employee understandsand hereby acknowledges that as a result of his employment with the Company hewill necessarily become informed of and have access to certain valuable andconfidential information of the Company and any of its subsidiaries, jointventures or affiliates, including without limitation inventions, trade secrets,technical information, know-how, plans, specifications, and identity ofcustomers and suppliers, and that such information even though it may bedeveloped or otherwise acquired by the Employee is the exclusive property ofthe Company to be held by the Employee in trust and solely for the Company’sbenefit.  Accordingly, the Employeehereby agrees that he shall not at any time either during or subsequent to hisemployment hereunder use, reveal, report, publish, transfer or otherwisedisclose to any person, corporation or other entity any of the Company’sconfidential information without the prior written consent of the Company,except to responsible officers and employees of the Company and otherresponsible persons who are in a contractual or fiduciary relationship with theCompany or who have a need for such information for purposes in the interest ofthe Company and except for such information that legally and legitimately is orbecomes of general public knowledge from authorized sources other than theEmployee.

 

(b)  Upon the termination of hisemployment with the Company for any reason whatsoever, the Employee shallpromptly deliver to the Company all drawings, manuals, letters, notes,notebooks, reports and copies thereof and all other materials including withoutlimitation those of a secret or confidential nature relating to the Company’sbusiness that are in the Employee’s possession or control.

 

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10.   COVENANT NOT TO COMPETE.

 

The Employee agrees that during the Term and for a period of two (2)years after termination of his employment with the Company for any reason, heshall not, within 50 miles of any location at which the Company, at the time ofhis termination of employment, is conducting its business (or in such smallerarea or for such lesser period as may be determined by a court of competentjurisdiction to be a reasonable limitation on the competitive activity of theEmployee), directly or indirectly:

 

(a)  engage in a competitiveline of business to that carried on by the Company either for his own accountor with or for anyone else,

 

(b)  solicit or attempt tosolicit business of any customers of the Company or products or services thesame or similar to those offered, sold, produced or under development by theCompany,

 

(c)  otherwise divert or attemptto divert from the Company any business whatsoever,

 

(d)  solicit or attempt tosolicit for any business endeavor any employee of the Company,

 

(e)  interfere with any businessrelationship between the Company and any other person, or

 

(f)  render any services as anofficer, director, employee, partner, consultant or otherwise to, or have anyinterest as a stockholder, partner, lender or otherwise in, any person that isso engaged.

 

Notwithstanding anything to the contrary in this Section 10, theprovisions hereof shall not prevent the Employee from purchasing or owning upto 5% of the voting securities of any corporation the stock of which ispublicly traded.

 

For the purposes of this Section 10, “Company” shall mean AeroflexIncorporated, its subsidiaries and affiliates.

 

11.  INJUNCTIVE RELIEF.

 

The Parties specifically agree that any breach of any of the provisionsof Section 9 or Section 10 above shall constitute a material breachof this Agreement.  In the event of abreach or threatened breach by the Employee of any of the provisions of Section 9or Section 10 of this Agreement, the Company shall be entitled to pursueany remedies available to the Company at law or in equity, including, but notlimited to, injunctive relief.

 

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12.  WITHHOLDING TAXES.

 

All payments to the Employee or his Beneficiary shall be subject towithholding on account of federal, state and local taxes as required bylaw.  If any payment hereunder isinsufficient to provide the amount of such taxes required to be withheld, theCompany may withhold such taxes from any other payment due the Employee or hisBeneficiary.  In the event that all cashpayments due the Employee are insufficient to provide the required amount ofsuch withholding taxes, the Employee or his Beneficiary, within five (5) daysafter written notice from the Company, shall pay to the Company the amount ofsuch withholding taxes in excess of all cash payments due the Employee or hisBeneficiary.

 

13.  INDEMNIFICATION.

 

The Company agrees to indemnify the Employee to the fullest extentpermitted by applicable law consistent with the Company’s Certificate ofIncorporation and By-Laws as in effect on the effective date of this Agreementwith respect to any action or failure to act on his part while he was anofficer, director and/or employee (a) of the Company or any subsidiary thereofor (b) of any other entity if his service with such entity was at the requestof the Company.  This provision shallsurvive the termination of this Agreement.

 

14.  EFFECT OF AGREEMENT ONOTHER BENEFITS.

 

The existence of this Agreement shall not prohibit or restrict theEmployee’s entitlement to participate fully in the Employee compensation,employee benefit and other plans or programs of the Company in which seniorEmployees are eligible to participate.

 

15.  ASSIGNABILITY; BINDING NATURE.

 

This Agreement shall be binding upon and inure to the benefit of theParties and their respective successors, heirs (in the case of the Employee)and assigns.  No rights or obligationsof the Company under this Agreement may be assigned or transferred by theCompany except that such rights or obligations may be assigned or transferredpursuant to (a) a merger or consolidation in which the Company is not thecontinuing entity or (b) sale or liquidation of all or substantially all of theassets of the Company, provided that the assignee or transferee is thesuccessor to all or substantially all of the assets of the Company and suchassignee or transferee assumes the liabilities, obligations and duties of theCompany, as contained in this Agreement, either contractually or as a matter oflaw.  The Company further agrees that,in the event of a sale of assets or liquidation as described in the precedingsentence, it will use its best efforts to cause such assignee or transfereeexpressly to assume the liabilities, obligations and duties of the Companyhereunder.  No obligations of theEmployee under this Agreement may be assigned or transferred by the Employee.

 

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16.  REPRESENTATIONS.

 

The Parties respectively represent and warrant that each is fullyauthorized and empowered to enter into this Agreement and that the performanceof its or his, as the case may be, obligations under this Agreement will notviolate any agreement between such Party and any other person, firm ororganization.

 

17.  ENTIRE AGREEMENT.

 

Except to the extent otherwise provided herein, this Agreement containsthe entire understanding and agreement between the Parties concerning thesubject matter hereof and supersedes any prior agreements, whether written ororal, between the Parties concerning the subject matter hereof. This Agreementsupercedes all prior agreements between the parties related to the subjectmatter hereof.

 

18.  AMENDMENT OR WAIVER.

 

No provision in this Agreement may be amended unless such amendment isagreed to in writing and signed by both the Employee and an authorized officerof the Company other than the Employee. No waiver by either Party of any breach by the other Party of anycondition or provision contained in this Agreement to be performed by suchother Party shall be deemed a waiver of a similar or dissimilar condition orprovision at the same or any prior or subsequent time.  Any waiver must be in writing and signed bythe Employee or an authorized officer of the Company other than the Employee,as the case may be.

 

19.  SEVERABILITY.

 

In the event that any provision or portion of this Agreement shall bedetermined to be invalid or unenforceable for any reason, in whole or in part,the remaining provisions of this Agreement shall be unaffected thereby andshall remain in full force and effect to the fullest extent permitted by law.

 

20.  SURVIVORSHIP.

 

The respective rights and obligations of the Parties hereunder shallsurvive any termination of the Employee’s employment with the Company to theextent necessary to the intended preservation of such rights and obligations asdescribed in this Agreement.

 

21.  BENEFICIARIES/REFERENCES.

 

The Employee shall be entitled to select (and change, to the extentpermitted under any applicable law) a beneficiary or beneficiaries to receiveany compensation or benefit payable hereunder following the Employee’s death bygiving the Company written notice thereof. In the event of the Employee’s death or of a judicial determination ofhis incompetence, reference in this Agreement to the

 

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Employee shall be deemed torefer to his beneficiary, and if the Employee shall not have designated abeneficiary, his Spouse.

 

22.  GOVERNING LAW/JURISDICTION.

 

This Agreement shall be governed by and construed and interpreted inaccordance with the laws of New York, without reference to principles ofconflict of laws.

 

23.  RESOLUTION OF DISPUTES.

 

(a)  Any disputes arising underor in connection with this Agreement shall be resolved by litigation in a courtof competent jurisdiction in the State of New York.

 

(b)  Each party shall bear itsown costs, fees and expenses, including attorneys’ fees, of any action inconnection with this Agreement.

 

(c)   Pending the outcome orresolution of any dispute, the Company shall continue payment of all amountsdue the Employee under this Agreement without regard to any dispute.

 

24.     NOTICES.

 

 Any notice given to eitherParty shall be in writing and shall be deemed to have been given when deliveredeither personally, by fax, by overnight delivery service (such as FederalExpress) or sent by certified or registered mail, postage prepaid, returnreceipt requested, duly addressed to the Party concerned at the addressindicated below or to such changed address as such Party may subsequently givesuch notice of.

 

If to the Company or the Board:

 

Aeroflex Incorporated

35 South Service Road

Plainview, NY  11803

Attention: Michael Gorin

FAX:  (516) 694-4823

 

If to the Employee:

 

Carl Caruso

5 Flamingo Drive

Smithtown, NY 11787

 

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25.     HEADINGS.

 

The headingsof the sections contained in this Agreement are for convenience only and shallnot be deemed to control or affect the meaning or construction of any provisionof this Agreement.

 

26.    COUNTERPARTS.

 

This Agreementmay be executed in two or more counterparts.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as ofthe date first written above.

 
|    | Aeroflex  Incorporated                                                      |
|---------|-----------------------------------------------------------------------------|
|    |                                                                        |
| Attest: | /s/  Charles Badlato                                                   |   | By: | /s/ Michael  Gorin |   |
|    |                                                                        |
|    |                                                                        |
|    |          /s/  Carl Caruso |   |
|    |       Carl  Caruso                            |
|         |                                                                             |  |  |  |  |

 

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