Exhibit 10.3


 


EXECUTIVE EMPLOYMENT
AGREEMENT


 


THIS EXECUTIVE EMPLOYMENT
AGREEMENT (the “Agreement”) dated effective as of
November 1, 2007 (“Effective Date”),
is made and entered into by and between EMRISE CORPORATION, a Delaware
corporation (“Employer”), and D. JOHN DONOVAN (“Executive”).


 


R E C I T A L S


 


Employer desires that
Executive enter into an employment relationship with Employer in order to
provide the necessary leadership and senior management skills that are
important to the success of Employer. Employer believes that obtaining
Executive’s services as an employee of Employer and the benefits of his
business experience are of material importance to Employer and Employer’s
stockholders.


 


NOW, THEREFORE, in
consideration of Executive’s employment by Employer and the mutual promises and
covenants contained herein, the receipt and sufficiency of which is hereby
acknowledged, Employer and Executive intend by this Agreement to specify the
terms and conditions of Executive’s employment relationship with Employer.


 


1.             General Duties of Employer and Executive.


 


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


 


(b)           While employed
hereunder, Executive shall use his best efforts to obey the lawful directions
of the CEO. Executive shall also use his best efforts to promote the interests
of Employer and to maintain and to promote the reputation of Employer. While
employed hereunder, Executive shall devote his full business time, efforts,
skills and attention to the affairs of Employer and faithfully perform his
duties and responsibilities hereunder.


 


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


 

















 


2.             Compensation and Benefits.


 


(a)           As compensation for his
services 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 regular
payroll policy for salaried employees (the “Salary”). At
the end of the first six (6) months of employment the Executive shall receive
an 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 of
Employer (the “Board”) shall perform an annual
review of the Executive’s Salary based on a review of Executive’s performance
of his duties prepared by Employer’s CEO and Employer’s other compensation
policies. The Compensation Committee may, at its sole discretion, increase (but
not decrease) the Salary at any time, and from time to time.


 


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


 


(c)           In addition to the
foregoing Salary, Executive shall be eligible for an annual incentive bonus (“Incentive Bonus”) based on criteria determined by the
Compensation Committee, at its sole discretion. 
The Incentive Bonus shall be payable annually in cash, following the
date on which Employer’s Form 10-K for the previous fiscal year is filed with
the Securities and Exchange Commission, but in no event later than the Short
Term Deferral Date as defined in Section 3.1; provided, however,
that Executive shall not be eligible for an Incentive Bonus for fiscal years
2007 and 2008. Executive be eligible for a partial bonus in 2008 based solely
upon the CEO’s determination in his absolute discretion.


 


(d)           Upon Executive’s
furnishing to Employer customary and reasonable documentary support (such as
receipts or paid bills) evidencing costs and expenses incurred by him in the
performance of his services and duties hereunder (including, without
limitation, travel and entertainment and cellular telephone expenses) and
containing sufficient information to establish the amount, date, place and essential
character of the expenditure, Executive shall be reimbursed for such costs and
expenses in accordance with Employer’s normal expense reimbursement policy.


 


(e)           In recognition of
Executive’s intention to, and Employer’s desire that Executive will, participate
in 40 hours each year of continuing professional education and certification
requirements as a Certified Public Accountant, Employer shall reimburse
Executive for up to $5,000 per year for reasonable and properly documented
expenses incurred by Executive for such continuing professional education.


 


(f)            Executive shall be
entitled to participate in the medical (including hospitalization) and dental
insurance plans, to the extent offered by Employer, and in amounts consistent
with Employer’s policy for other senior executive officers of Employer, with


 


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


 


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


 


(h)           Executive shall be
entitled 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’s
normal policies for other senior executive officers of Employer or as otherwise
approved by the Board.


 


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


 


(j)            Employer shall
purchase and maintain in effect a directors’ and officers’ liability insurance
policy with a minimum limit of liability of $10,000,000 and shall enter into an
indemnification agreement with Executive upon terms and conditions mutually
acceptable to Employer and Executive.


 


3.             Deferred Compensation.


 


(a)           This Agreement is not
intended to provide for any deferral of compensation payable during Executive’s
employment pursuant to Section 409A of the Internal Revenue Code (the “Code”) and, accordingly, any compensation paid to Executive
pursuant to this Agreement during Executive’s employment is intended to be paid
not later than the later of:  (i) the
fifteenth (15th) day of the third (3rd) month following
the Executive’s first (1st) taxable year in which such benefit is no
longer 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 a
substantial risk of forfeiture, as determined in accordance with
Section 409A of the Code and any Treasury Regulations and other guidance
issued thereunder.  The date determined
under this subsection is referred to as the “Short-Term
Deferral Date.” 
Notwithstanding anything to the contrary herein, in the event that any
compensation paid pursuant to this Agreement during Executive’s employment is
not actually or constructively received by Executive on or before the
Short-Term Deferral Date, to the extent such compensation, or any portion
thereof, constitutes a deferral of compensation subject to Code
Section 409A, then, subject to Section 3(b), such benefit
shall be paid upon Executive’s separation from service, with respect to
Employer and its affiliates within the meaning of Section 409A of the
Code.


 


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(b)           In the event that
Executive is a “specified employee,” as
defined in Section 409A(a)(2)(B)(i) of the Code as of the date of
any separation from service with respect to Employer and its affiliates, no
payment of deferred compensation subject to Code Section 409A may be made
to Executive before the date that is six (6) months after the date of
separation from service (or, if earlier, the date of death of the specified
employee), and, in such case, any payments shall be accumulated and paid on the
first date of the seventh (7th) month following separation from
service; provided, however, that any payment or portion thereof
which is subject to an exemption for separation pay to specified employees as
provided under Treasury Regulation § 1.409A, or is subject to any other
exemption provided under Treasury Regulation § 1.409A allowing for payment
to a specified employee prior to the date that is six (6) months after the date
of separation from service, may be paid to Executive upon separation from
service.


 


4.             Preservation of Business; Fiduciary Responsibility.


 


Executive shall use his
best efforts to preserve the business and organization of Employer and to
preserve the business relations of Employer. So long as Executive is employed
by Employer, Executive shall observe and fulfill proper standards of fiduciary
responsibility attendant upon his service and office.


 


5.             No Specified Term; Employment at Will.


 


The employment
relationship between Employer and Executive pursuant to this Agreement is not
for any specific term, but may be terminated with or without cause, by Employer
or by Executive, at any time and for any reason, subject to the rights and
obligations of Employer and Executive as set forth in this Agreement.  Any modification to the nature of the at-will
employment relationship between Employer and Executive must be made in writing,
and must be signed by Executive and by Employer.


 


6.             Termination.


 


Employer or Executive may
terminate Executive’s employment under this Agreement at any time, but only on
the following terms:


 


(a)           Employer may terminate
Executive’s employment under this Agreement at any time for “Due Cause” (as
defined in Appendix I attached hereto and incorporated herein by
this reference) upon the good faith determination by the Board that Due Cause
exists for the termination of the employment relationship.


 


(b)           If Executive is
incapacitated by accident, sickness or otherwise so as to render Executive
either:  (i)  unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months; or (ii) by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less
than twelve (12) months is receiving income replacement benefits for a period
of not less than three (3) months under an accident and health plan covering
employees of Employer; and such incapacity is confirmed by the U.S. Social
Security Administration or in accordance with a disability insurance program
maintained by Employer, Employer may terminate Executive’s employment


 


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


 


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


 


(d)           Subject to the
provisions of Section 7(c), Employer may terminate Executive’s
employment under this Agreement at any time for any reason whatsoever, even
without Due Cause, by giving a written notice of termination to Executive, in
which case the employment relationship shall terminate immediately upon the
giving of the notice. If Employer terminates the employment of Executive other than
(i) pursuant to Section 6(a) for Due Cause, (ii) due to incapacity
pursuant 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 consented
to in writing by Executive, shall be deemed to be a constructive termination by
Employer of Executive’s employment (a “Constructive Termination”),
and, in that event, Executive shall be entitled to receive the compensation set
forth in Section 7(c).


 


(e)           Executive may terminate
this Agreement at any time within ninety (90) days of the occurrence of any
event comprising “Good Reason” (as
defined in Appendix I attached hereto and incorporated herein by
this reference); provided, however, that Executive provides
Employer with written notice of the event or condition constituting Good Reason within thirty (30) days of
the initial existence of such event or condition, and that Employer shall have
a period of thirty (30) days to cure such event or condition and, in the event
that Employer fails to cure such event or condition, Executive shall be
entitled to receive the compensation set forth in Section 7(c).


 


7.             Effect of Termination.


 


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


 


(b)           If Executive’s
employment relationship is terminated due to Executive’s incapacity pursuant to
Section 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 3
of this Agreement, be entitled to (i) those benefits that are provided by
retirement and benefits plans and


 


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programs specifically
adopted and approved by Employer for Executive that are earned and vested at
the date of termination, (ii) a prorated Incentive Bonus, payable in the manner
as prescribed in the second sentence of Section 2(b) (to the extent
Executive would otherwise be eligible) for the fiscal year in which incapacity
or 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 any
event, 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 Section
2(a), which amount shall be net of all then applicable federal, state and
local taxes payable by Executive relating to such payment (said payment taking
into consideration the full gross-up effect of additional taxes payable with
respect to tax payments).


 


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


 


(i)            pay to Executive on
the date of termination his Salary in effect as of the date of termination
through the end of the month during which the termination occurs plus credit
for any vacation earned but not taken;


 


(ii)           pay to Executive on the
first business day following the expiration of the revocation period described
in Section 7(d) (provided Executive has not tendered his revocation),
but in any event, not later than the Short-Term Deferral Date, as severance pay
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 taxes
payable by Executive relating to such payment (said payment taking into
consideration the full gross-up effect of additional taxes payable with respect
to tax payments);


 


(iii)          pay to Executive the
prorated Incentive Bonus, to the extent Executive would otherwise be eligible
for any, for the fiscal year during which termination occurs, payable as
provided in Section 2(a); and


 


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


 


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


 


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


 


(d)           Executive shall be
entitled to the payments and benefits described in subsections 7(c)(ii) and
(iv) only if Executive signs an appropriate separation agreement in a form
acceptable to Employer, which includes a release of all claims against Employer
to the fullest extent permitted by law, such agreement actually enters into
effect following any revocation period required by law, and Executive complies
fully with any continuing obligations under this Agreement.


 


(e)           Executive shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor shall the amount
of any payment provided for under this Agreement be reduced by any compensation
earned by Executive as the result of employment by another Employer after the
date of termination, or otherwise.


 


(f)            Except as expressly
provided herein, the provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish Executive’s existing rights, or rights which would accrue solely
as a result of the passage of time, under any Employer Benefit Plan, employment
agreement or other contract, plan or arrangement.


 


(g)           The amount of any
payment provided under this Agreement shall not be reduced by reason of any
present value calculation.


 


(h)           Upon termination of
this Agreement, compensation and benefits shall be paid to the Executive as set
forth in the applicable subsection of this Section 7 and stock
grants or options granted to Executive, if any, shall be governed by the
provisions of all stock grant or option agreements between Employer and
Executive. In the event of a termination of this Agreement by Executive for
Good Reason, all other rights and benefits Executive may have under the
employee and/or executive benefit plans and arrangements of Employer generally
shall be determined in accordance with the terms and conditions of those plans
and arrangements.


 


8.             Payment Upon Change in Control.


 


Immediately preceding the
occurrence of a “Change in Control” (as
defined in Appendix I attached hereto and incorporated herein by
this reference), Employer shall pay to Employee, in immediately available
funds, 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 taxes
payable by Executive relating to such payment (said payment taking into
consideration the full gross-up effect of additional taxes payable with respect
to tax payments).


 


9.             Covenants of Confidentiality, Nondisclosure and
Noncompetition.


 


(a)           During the term of this
Agreement, Employer will provide to Executive certain confidential and
proprietary information owned by Employer as more fully described below.
Executive acknowledges that he occupies or will occupy a position of trust and
confidence with Employer, and that Employer would be irreparably damaged if
Executive were


 


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to breach the covenants
set forth in this Section 9(a). 
Accordingly, Executive agrees that he will not, without the prior
written consent of Employer, at any time during the term of this Agreement or
any time thereafter, except as may be required by competent legal authority or
as required by Employer to be disclosed in the course of performing Executive’s
duties under this Agreement for Employer, use or disclose to any person, firm
or other legal entity, any confidential records, secrets or information
obtained by Executive during his employment hereunder related to Employer or
any parent, subsidiary or affiliated person or entity (collectively, “Confidential Information”). Confidential Information shall
include, without limitation, information about Employer’s Inventions (as
defined in Section 10(a), customer lists and product pricing, data,
know-how, formulae, processes, ideas, past, current and planned product
development, market studies, computer software and programs, database and
network technologies, strategic planning and risk management. Executive
acknowledges and agrees that all Confidential Information of Employer and/or
its affiliates will be received in confidence and as a fiduciary of Employer.
Executive will exercise utmost diligence to protect and guard the Confidential
Information.


 


(b)           Executive agrees that
he will not, without the express written consent of the Board, take with him
upon the termination of this Agreement, any document or paper, or any photocopy
or reproduction or duplication thereof, relating to any Confidential
Information.


 


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


 


(d)           Executive agrees that, while
Executive is employed with Employer, he will not, either directly or
indirectly, have an interest in any business (whether as manager, operator,
licensor, licensee, partner, 5% or greater equity holder, employee, consultant,
director, advisor or otherwise) competitive with Employer or any of its
business activities or solicit individuals or other entities that are customers
or competitors of Employer.  Executive
further agrees that, for a period of twenty-four (24) months after the date of
termination of this Agreement (the “Restricted Period”),
Executive shall not use Employer’s trade secrets, either directly or
indirectly, to compete in any way with the business of Employer and will not
solicit individuals or other entities that are customers or competitors of
Employer during the six-month period immediately prior to the date of
termination of this Agreement, to terminate or change their contracts or
business relations with Employer. Executive also agrees that, for the
Restricted Period, he will not, either directly or indirectly, solicit any
employee of Employer to terminate his employment with Employer.


 


(e)           For purposes of this Section 9,
“Employer” shall include any of its
parents, subsidiaries or any other entity in which it holds a 50% or greater
equity interest.


 


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10.           Inventions.


 


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


 


SECTION 2870
OF THE CALIFORNIA LABOR CODE


 


Application of Provisions
Providing that Employee Shall Assign or Offer to Assign Rights in Invention to
Employer.


 


(a)           Any provision in an employment
agreement which provides that an employee shall assign, or offer to assign, any
of his or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time
without using employer’s equipment, supplies, facilities, or trade secret
information except for those inventions that either:


 


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


 


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


 


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


 


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


 


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


 


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11.           No Violation.


 


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


 


12.           Injunctive Relief.


 


Executive acknowledges
that the breach, or threatened breach, by Executive of the provisions of this
Agreement shall cause irreparable harm to Employer, which harm cannot be fully
redressed by the payment of damages to Employer. Accordingly, Employer shall be
entitled, in addition to any other right or remedy it may have at law or in
equity, to seek an injunction or restraining Executive from any violation or
threatened violation of this Agreement.


 


13.           Dispute Resolution.


 


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 the
breach thereof, whether contractual or noncontractual, and whether during the
term or after the termination of this Agreement, shall be resolved exclusively
according to the procedures set forth in this Section 13, and not
through resort to any judicial proceedings.


 


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


 


(b)           Any dispute that is not
settled by mediation as provided in Section 13(a) shall be resolved
by arbitration in Orange County, California, before a single arbitrator
appointed by the American Arbitration Association or its successor. The
determination of the arbitrator shall be final and absolute. The arbitrator
shall be governed by the duly promulgated rules and regulations of the American
Arbitration Association or its successor then in effect, and the pertinent
provisions of the laws of the State of California relating to arbitration. The
decision of the arbitrator may be entered as a final judgment in any court of the
State of California or elsewhere. The prevailing party in any such arbitration
shall also be entitled to recover reasonable attorneys’, accountants’ and
experts’ fees and costs of suit in addition to any other relief awarded the
prevailing party.


 


14.           Miscellaneous.


 


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


 


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


 


	
  If to Employer:

  	
   

  	
  EMRISE Corporation

  
	
   

  	
   

  	
  9485 Haven Avenue

  
	
   

  	
   

  	
  Rancho Cucamonga, CA
  91730

  
	
   

  	
   

  	
  Attention: Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
  If to Executive:

  	
   

  	
  John Donovan

  
	
   

  	
   

  	
  2671 Swift Court

  
	
   

  	
   

  	
  La Verne, CA 91750

  



 


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


 


(c)           This Agreement shall be
binding upon and inure to the benefit of Employer, its successors, legal
representatives and assigns, and Executive, his heirs, executors,
administrators, representatives, legatees and permitted assigns. Executive
agrees that his rights and obligations hereunder are personal to him and may
not be assigned without the express written consent of Employer. If Executive
should die while any amounts are due to him pursuant to this Agreement, all
such amounts shall be paid to Executive’s devisee, legatee or other designee,
or if there be no such designee, to Executive’s estate. Employer will require
any successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer, by Agreement in form and substance satisfactory to
Executive and his legal counsel, expressly, absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that Employer would be required to perform each of them if no such
succession or assignment had taken place. Any failure of Employer to obtain
such agreement prior to the effectiveness of any such succession or assignment
shall be a material breach of this Agreement and shall entitle Executive to
terminate Executive’s employment for Good Reason. As used in this Agreement, “Employer” means EMRISE Corporation and any successor or
assign to its business and/or assets which executes and delivers the Agreement
provided for in this Section or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement Executive is employed by any company a
majority of the voting securities of which is then owned by Employer, “Employer” as used in this Agreement
shall in addition include that subsidiary company. In that event, Employer
agrees that it shall pay or shall cause the subsidiary company to pay any
amounts owed to Executive pursuant to this Agreement.


 


(d)           This Agreement replaces
and merges all previous agreements and discussions relating to the same or similar
subject matters between Executive and Employer with respect to the subject
matter of this Agreement (other than any option agreement dated prior to the
Effective Date between Executive and Employer), including without limitation
that certain Executive Employment dated effective as of May 16, 2007 between
Employer and Executive.


 


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This Agreement may not be
modified in any respect by any verbal statement, representation or agreement
made by any employee, officer, or representative of Employer or by any written
agreement unless signed by an officer of Employer who is expressly authorized
by Employer to execute that document.


 


(e)           The laws of the State
of California will govern the interpretation, validity and effect of this
Agreement without regard to principles of conflicts of law, the place of
execution or the place for performance thereof.


 


(f)            Executive and Employer
shall execute and deliver any and all additional instruments and agreements
that may be necessary or proper to carry out the purposes of this Agreement.


 


(g)           The descriptive
headings of the several sections of this Agreement are inserted for convenience
only and do not constitute a party of this Agreement.


 


(h)           This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same Agreement.


 


(i)            Executive acknowledges
that Executive has had the opportunity to read this Agreement and discuss it
with advisors and legal counsel, if Executive has so chosen. Executive also
acknowledges the importance of this Agreement and that Employer is relying on
this Agreement in entering into an employment relationship with Executive.


 


The undersigned,
intending to be legally bound, have executed this Agreement effective as of the
date 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 this
Agreement, the following additional capitalized terms shall have the respective
definitions set forth below:


 


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


 


Change in Control.  The term “Change
in 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 defined
in Sections 3(a)(9), 13(d), and 14(d) of the Exchange Act and the rules
thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3
under the Exchange Act) of securities entitled to vote generally in the
election of directors (“voting securities”) of Employer that represent 40% or more of the combined voting
power of Employer’s then outstanding voting securities or 50% or more of the
combined Fair Market Value of Employer’s then outstanding stock, other than:


 


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


 


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


 


provided,
however, that notwithstanding the foregoing, an acquisition of Employer’s
securities by Employer that (x) causes Employer’s voting securities
beneficially owned by a person or group to represent 40% or more of the combined voting power of Employer’s then
outstanding voting securities or (y) cause Employer’s stock beneficially owned
by a person or group to represent 50% or more of the combined Fair Market Value
of Employer’s then outstanding stock shall not be considered an acquisition by
any 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 voting
power of Employer’s then outstanding voting securities or 50% or more of the
combined Fair Market Value of Employer’s then outstanding stock by reason of
share acquisitions by Employer as described above and shall, after such share
acquisitions by Employer, become the beneficial owner of any additional
securities of Employer, then such acquisition shall constitute a Change in
Control;


 


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(b)           the date a majority of
members of the Board is replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the members of the
Board before the date of the appointment or election, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or 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) of
the Exchange Act and the rules thereunder), or combined acquisitions during the
12-month period ending on the date of the most recent acquisition by such
person or group, of ownership of assets from Employer that have a total gross
fair market value equal to or more than 40% of the total gross fair market
value of all of the assets of the corporation immediately before such
acquisition; and


 


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


 


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


 


Notwithstanding the
foregoing, there is no Change in Control event when there is a transfer to an
entity that is controlled by the stockholders of the Company immediately after
the transfer.  A transfer of assets by
Employer is not treated as a Change in Control if the assets are transferred
to:


 


(i)            a stockholder of
Employer (immediately before the asset transfer) in exchange for or with
respect to the stockholders’ stock;


 


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


 


(iii)          a person or group that
owns, directly or indirectly, 50% or more of the total value or voting power of
all 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 following
events:


 


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


 


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


 


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


 


(d)           Executive’s breach,
nonperformance or nonobservance of any of the terms of this Agreement,
including but not limited to Executive’s failure to adequately perform his
duties or comply with the reasonable directions of the Board.


 


Notwithstanding anything
in the foregoing subsections (c) or (d) to the contrary, Employer shall not
terminate Executive under subsections (c) or (d) unless the Board first
provides Executive with a written memorandum describing in detail how his
performance hereunder is not satisfactory and Executive is given a reasonable
period of time (not less than thirty (30) days) to remedy the unsatisfactory
performance related by the Board to Executive in that memorandum. A
determination of whether Executive has satisfactorily remedied the
unsatisfactory performance shall be promptly made by a majority of the
disinterested directors of the Board at the end of the period provided to
Executive for remedy and their determination shall be final.


 


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


 


Fair
Market-Value.  The
term “Fair Market Value” of a
share of Employer’s common stock as of a given date shall be: (a) if the common
stock is listed or admitted for trading on any United States national
securities exchange and/or is quoted on a system of automated dissemination of
quotations of securities prices in common use, the last reported sale price of
a share of common stock on the principal exchange or system on which shares of
common 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 Fair
Market Value shall be the average of the closing high bid and low asked
quotations for a share of common stock on such principal exchange or system on
such date (or if bid and asked prices were not both reported on such date, then
on the next preceding date on which bid and asked prices were both reported); provided
further, 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 other
source as the Board deems reliable; or (b) if the common stock is not listed or
admitted for trading on such an exchange or system on such date, the Fair
Market Value of a share of common stock as established by the Board acting in
good faith, taking into account all material information available with respect
to the value of a share of common stock, including, without limitation, the
value of the tangible and intangible assets of Employer, the present value of
its anticipated future cash flows, the market value of the stock or equity
interests in other entities engaged in substantially the same business, recent
arm’s length transactions involving the sale of common stock, and other
relevant factors such as control premiums or discounts for lack of
marketability.


 


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


 


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to terminate his
employment for such Good Reason, specifying the Good Reason, and Employer fails
to remedy the specified event or condition within thirty (30) days after
receipt of such notice:


 


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


 


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


 


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


 


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


 


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