**Exhibit 10.3**

 

**DEBENTURE REDEMPTIONAGREEMENT**

 

This Debenture RedemptionAgreement (“***Agreement***”) is entered intoas of October 27, 2008 by and between                             (“***Holder***”) and Iteris, Inc. (“***Iteris***” or the “***Company***”).

 

RECITALS

 

WHEREAS, Holder holds a 6%Convertible Debenture dated May 19, 2004 in the principal amount of $                    [and a 6% Convertible Debenture dated May 5, 2005 in the principal amountof $                    ](together, the “***Debentures***”); and

 

WHEREAS, the parties heretohave reached certain agreements with respect to the redemption of theabove-described debentures.

 

NOW, THEREFORE, inconsideration of the foregoing and the mutual promises and agreements containedherein, the sufficiency of which is hereby acknowledged, the parties heretoagree as follows:

 

1.             DebenturesRedemption.

 

1.1.          The Company agrees to redeem from Holder, and Holder agreesto sell back to the Company, the Debentures for an aggregate payment of                           ($                    )(the “***Redemption Price***”).  In addition to the payment of the RedemptionPrice, the Company shall pay at the Closing (as defined below) all accrued butunpaid interest on the Debentures as of the date of Closing.

 

1.2.          The redemption of the Debentures (the “***Redemption***”)shall take place at the offices of Dorsey & Whitney LLP, 38 TechnologyDrive, Suite 100, Irvine, California 92618, at 1:00 P.M. Pacific Timeon October 27, 2008, or at such other time and place as the Company andHolder mutually agree orally or in writing (which time and place are designatedas the “***Closing***”).  At the Closing, Holder shall deliver to theCompany the originals of the Debentures against payment by the Company of theamounts set forth in Section 1.1 by check, wire transfer or anycombination thereof.  Notwithstanding theforegoing, Holder acknowledges and agrees that, upon and as of the payment bythe Company of the amounts set forth in Section 1.1, whether or notHolder has delivered and surrendered the originals of the Debentures to theCompany, the Debentures shall be deemed null and void and cancelled in itsentirety and Holder shall have no further rights with respect to or under theDebentures, whether such rights shall have accrued prior to or after the datehereof.

 

2.             Representationsand Warranties.  Holder herebyrepresents, warrants and acknowledges as follows:

 

2.1.          As of the date hereof, the aggregate principal amountoutstanding under the Debentures is                           ($                    )and the aggregate accrued but unpaid interest outstanding under the Debenturesis                           ($                    ).

 

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2.2.          Holder is the sole record and beneficial owner of theDebentures.  Upon payment of the amountsset forth in Section 1.1, the Company will acquire good and validtitle to the Debentures, free and clear of all liens, securityinterests, pledges, claims and encumbrances of every kind, nature anddescription incurred or created by Holder.

 

2.3.          Holder has the full right and power to enter into thisAgreement, to perform its obligations hereunder and to consummate thetransactions contemplated hereby.  Theexecution, delivery and performance of this Agreement by Holder, and theconsummation of the transactions contemplated hereby, (i) have been dulyauthorized by all requisite organizational action of Holder and (ii) donot and will not conflict with any law applicable to Holder or any of itsproperties or assets or any provisions of Holder’s organizational documents orcontracts, agreements or other instrument to which Holder is a party or bywhich any of its properties or assets may be bound.

 

2.4.          Holder is an experienced and sophisticated investor, havingsuch knowledge and experience in business and financial matters and investingas to be able to protect its own interests and assess the risks and merits ofthe Redemption.  Holder has independentlydetermined the advisability of entering into this Agreement and is enteringinto this Agreement of its own volition, and is not relying on anyrepresentations or statements of the Company or its officers, directors,shareholders, employees, agents, attorneys and representatives except for thoserepresentations and statements expressly set forth herein.

 

2.5.          Holder has had the opportunity to consult with counsel ofits choice regarding the meaning and legal effect of this Agreement, andregarding the advisability of making the agreements provided for herein, andfully understands the same.

 

3.             Release.  The following release shall be effective uponthe Company’s payment of the amounts set forth in Section 1.1.

 

3.1.          Other than the obligations, covenants, representations andwarranties provided for in this Agreement, Holder, for itself and itspredecessors, successors, agents and assigns (individually and collectively,the “***Releasing Parties***”), hereby waives,releases, and forever discharges Iteris and its predecessors, successors,assigns, officers, directors, shareholders, employees, agents, attorneys andrepresentatives, past and present, (collectively, the “***IterisReleased Parties***”) of and from any and all rights, claims,debts, liabilities, demands, obligations, promises, damages, causes of actionand claims for relief of any kind, manner, nature and description, known orunknown, which any of the Releasing Parties have, may have had, might haveasserted, may now have or assert, or may hereafter have or assert against theIteris Released Parties, or any of them, related to or arising under theRedemption and Holder’s purchase and ownership of the Debentures.  Holder represents and warrants that it hasnot filed any claims, charges, complaints or actions against the Company andhas not assigned or transferred to any person or entity any of the claimsHolder is releasing in this Agreement.

 

3.2.          The Releasing Parties acknowledge and agree that theforegoing release includes in its effect all claims that they do not know orsuspect to exist in their favor as of the date hereof, and the ReleasingParties expressly waive any statute, legal doctrine or other similar limitationupon the effect of general releases.  Inparticular, the Releasing Parties waive any and 

 

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all rights and benefits conferred upon them by Section 1542of the California Civil Code, which states as follows:

 

AGENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW ORSUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HERSETTLEMENT WITH THE DEBTOR.

 

4.             Governing Law.  This Agreement shall in allrespects be interpreted, enforced, and governed by and under the internal lawsof the State of Delaware, without giving effect to any choice of law orconflict of law principles.

 

5.             EntireAgreement.  ThisAgreement constitutes the entire agreement between the parties with respect tothe subject matter and supersedes all prior oral or written communications,understandings and agreements with respect thereto.

 

6.             Headings.** **The use of headings in thisAgreement is merely for convenience and such headings shall not be used inconstruing any provisions of this Agreement.

 

7.             Interpretation.  Each party has had the opportunity tonegotiate modifications to the language of this Agreement and agrees that, inany dispute regarding the interpretation or construction of this Agreement, nopresumption shall operate in favor of or against any party by virtue of itsrole in drafting or not drafting the terms and conditions set forth herein.

 

8.             Severability.  If any part, term or provision of thisAgreement is held by a court to be void or voidable, illegal, unenforceable,invalid or otherwise in conflict with law, (i) the remaining provisions orapplications of this Agreement shall not be affected and the rights andobligations of the parties shall be construed and enforced as if this Agreementdid not contain the particular term or provision held to be invalid and (ii) suchprovision shall be amended to conform as nearly as possible, and only to theextent required, to applicable law.

 

9.             Counterparts.  This Agreement may be executed in severalcounterparts, each of which shall be deemed to be an original, and all suchcounterparts together shall constitute but one and the same instrument.  A photocopy or facsimile signature may beused as an original.

 

*[Signature Page Follows]*

 

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INWITNESS WHEREOF, the undersigned have executed this Agreement to be effectiveas of the date first indicated above.

 
| **Iteris, Inc.** | ** ** | **[                            ]** |
|-----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **            | ** ** | ** **                                                                                                                                                                     |
| ** **            | ** ** | ** **                                                                                                                                                                     |
| By:                   | ** ** | ** **                                                                                                                                                                     | By: | ** ** |
| ** **            | ** ** | ** **                                                                                                                                                                     |
| Name:                 | ** ** | ** **                                                                                                                                                                     | Name: | ** ** |
| ** **            | ** ** | ** **                                                                                                                                                                     |
| Title:                | ** ** | ** **                                                                                                                                                                     | Title: | ** ** |

 

 

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**Schedulefor Exhibit 10.3**

 

Iteris, Inc. enteredinto a Debenture Redemption Agreement with the following Holders, eachsubstantially identical to this Exhibit 10.3 except as noted below:

 
| **Holder**                | ** ** | **Principal Amount  of Debenture(s)** | ** **               | **Redemption Price** | ** ** | **Principal  Outstanding** | ** ** | **Accrued But  Unpaid Interest** | ** **   |
|---------------------------|------------|-------------------------------------------------|--------------------------|---------------------------|------------|----------------------------|------------|--------------------------------------------|--------------|
|                      |       |                                            |                     |                      |       |                       |       |                                       |         |
| Lloyd I. Miller, III |       | $                                               | 500,000.00  680,000.00   |                      | $          | 1,150,500.00               |       | $                                          | 1,180,000.00 |   | $ | 5,222.95 |   |
|                      |       |                                            |                     |                      |       |                       |       |                                       |         |
| Lloyd I. Miller Trust A-4 |       | $  $                                            | 500,000.00  1,320,000.00 |                      | $          | 1,774,500.00               |       | $                                          | 1,820,000.00 |   | $ | 8,055.74 |   |
|                      |       |                                            |                     |                      |       |                       |       |                                       |         |
| Milfam I, L.P.            |       | $  $                                            | 500,000.00  1,180,000.00 |                      | $          | 1,638,000.00               |       | $                                          | 1,680,000.00 |   | $ | 7,436.07 |   |
|                      |       |                                            |                     |                      |       |                       |       |                                       |         |
| Milfam II, L.P.           |       | $                                               | 500,000.00               |                      | $          | 487,500.00                 |       | $                                          | 500,000.00   |   | $ | 2,213.11 |   |

 

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