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  Exhibit 10.4    
    


 
    AMENDED AND RESTATED SEVERANCE
  AND CHANGE OF CONTROL AGREEMENT    
    



        This Amended and Restated Severance and Change of Control Agreement ("Agreement") is
effective as of August 4, 2008, between Kratos Defense & Security Solutions, Inc. (the "Company") and Deanna Lund
("Lund"), as approved by the Company's Board Compensation Committee. 


        A.    Lund
is presently employed as Chief Financial Officer pursuant to an offer letter dated March 15, 2004 (the "Offer
Letter"). 


        B.    On
March 28, 2005, the Company and Lund entered into a Change of Control Agreement, which memorialized in writing their understanding regarding the vesting of
stock options and stock appreciation rights granted to Lund under the Company's equity incentive plans in the event of a Change of Control, which was amended and restated on March 28, 2006 (the
original agreement together with any and all prior amendments is hereinafter referred to as the "Original Agreement") to enhance severance and address
compliance with Section 409A of the Internal Revenue Code of 1986 (the "Code"). 



        C.    As
consideration for Lund's agreement to undertake and continue her duties and responsibilities in her role as Chief Financial Officer, the Company and Lund desire to
enter into this Agreement to (i) make further changes to comply with subsequent guidance issued under Section 409A of the Code, and (ii) to give Lund additional protection if
there is a Change of Control of the Company as set forth in paragraph 6 hereof. 


        Therefore,
in consideration of the promises and the mutual covenants contained below, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows: 


        1.    Vesting Upon Change of Control.    Upon the closing of a transaction that constitutes a Change of Control (as
defined in paragraph 3(a) below), the vesting of 50% of all stock options, stock appreciation rights, restricted stock units and any other equity awards granted to Lund under the Company's
equity incentive plans that as of the date of such Change of Control remain unvested shall accelerate, to the extent permissible by law, notwithstanding and in addition to any existing vesting
provisions set forth in the applicable equity award agreement and/or the Company equity incentive plan. On the one year anniversary of such Change of Control or upon a Triggering Event (as defined in
paragraph 3(b) below), whichever occurs sooner, the remaining unvested portion of any outstanding equity awards shall immediately vest. 


        2.    Severance Payments.    



        (a)   If
Lund is (x) terminated without Cause (as defined in paragraph 3(c) below) prior to a Change of Control or (y) terminates as a result of a
Triggering Event (as defined in paragraph 3(b) below) after a Change of Control (as defined in paragraph 3(a) below), then Lund will be entitled to receive in satisfaction of all
obligations (other than as provided in paragraph 1 above) that the Company may have to Lund: (i) in the case of clause (x) hereof, severance compensation equal to one year of her
base salary then in effect; or in the case of clause (y) hereof, severance compensation equal to two years of her base salary plus her maximum potential bonus amount for two years; in either
case, less applicable taxes and withholding; and, if needed by Lund, (ii) her then-current health insurance coverage, at the then current employee cost, during the twelve
(12) month period following a termination in the case of clause (x); or during the twenty-four (24) month period following a resignation in the case of
clause (y). Such benefits will be provided for the twelve (12) month or twenty-four (24) month period, as applicable, following the date of Lund's termination. In
addition, in the event that Lund is terminated without Cause, the vesting of 



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100%
of all stock options, stock appreciation rights, restricted stock units and any other equity awards granted to Lund under the Company's equity incentive plans that as of the date of such
termination remain unvested shall accelerate, to the extent permissible by law, notwithstanding and in addition to any existing vesting provisions set forth in the applicable equity award agreement
and/or the Company equity incentive plan. The foregoing severance compensation, health insurance coverage and acceleration of vesting will be conditioned upon Lund's execution of a separation
agreement with a release of claims reasonably satisfactory to the Company and such cash severance compensation shall be paid in a single lump sum payment within thirty (30) days following
Lund's execution of such separation agreement. 


        (b)   Notwithstanding
any other provision of this Agreement to the contrary, if Lund is a "specified employee" within the meaning of Section 409A of the Code and the
related guidance ("Section 409A") at the time of Lund's separation from service, then only that portion of the severance and benefits set forth
in paragraph 2(a) above, together with any other severance payments or benefits, that may be considered deferred compensation under Section 409A, which (when considered together) do not
exceed the Section 409A Limit (as defined below) and which qualify as separation pay under Treasury Regulation Section 1.409A-1(b)(9)(iii), may be paid within the first six
(6) months following Lund's separation from service in accordance with paragraph 2(a) above or (for payments or benefits not provided under this Agreement) with the payment schedule
applicable to each such other payment or benefit. Otherwise, the portion of the severance and benefits provided under this Agreement, together with any other severance payments or benefits that may be
considered deferred compensation under Section 409A, that would otherwise be payable within the six (6) month period following Lund's separation from service will accrue during such six
(6) month period and will be paid in a lump sum on the date six (6) months and one (1) day following the date of Lund's separation from service (or the next business day if such
date is not business day). All remaining severance payments and benefits will be payable in accordance with the payment schedule applicable to such payments or benefits. For purposes of this
Agreement, "Section 409A Limit" means the lesser of two (2) times: (i) the sum of Lund's annualized compensation based upon the annual rate of pay for services provided to the
Company for the taxable year of Lund preceding the taxable year of Lund's separation from service from the Company as determined under Treasury Regulation
Section 1.409A-1(b)(9)(iii)(A)(1) and any related Internal Revenue Service guidance; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant
to Section 401(a)(17) of the Code for the year in which such separation from service occurs. 




        3.    Definition of Change of Control and Triggering Event.    



        (a)   A
Change of Control means: (i) the acquisition by an individual person or entity or a group of individuals or entities acting in concert, directly or indirectly,
through one transaction or a series of transactions, of more than 50% of the outstanding voting securities of the Company; (ii) a merger or consolidation of the Company with or into another
entity after which the stockholders of the Company immediately prior to such transaction hold less than 50% of the voting securities of the surviving entity; (iii) any action or event that
results in the Board of Directors consisting of fewer than a majority of Incumbent Directors ("Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date hereof, or (B) are elected or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination); or (iv) a sale of all or substantially all of the assets of the Company. 



        (b)   A
Triggering Event means (i) Lund's termination from employment by the Company without Cause; (ii) a material change in the nature of Lund's role or job
responsibilities so that Lund's job duties and responsibilities after the Change of Control, when considered in their totality as a whole, are substantially different in nature from the job duties
Lund performed immediately 



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prior
to the Change of Control; or (iii) the relocation of Lund's principal place of work to a location of more that thirty (30) miles from the location Lund was assigned to immediately
prior to the Change of Control; provided, however, in the case of a Triggering Event described in
clause (ii) or (iii) hereof, such condition shall not exist unless Lund provides written notice to the Company within ninety (90) days of its initial existence and the Company
does not cure such condition within thirty (30) days from the date it receives such notice from Lund. In addition, no Triggering Event will be deemed to have occurred unless Lund separates from
service within twelve (12) months from the date such Triggering Event initially occurs. 


        (c)   "Cause"
means (i) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Lund with respect to Lund's obligations or
otherwise relating to the business of the Company; (ii) Lund's material breach of this Agreement or the Company's standard form of confidentiality agreement; (iii) Lund's conviction or
entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; (iv) Lund's failure to
perform her duties and responsibilities as Chief Financial Officer to the reasonable satisfaction of the Board after being provided with notice thereof and thirty (30) days opportunity to
remedy such failure; and (v) Lund's willful neglect of duties or poor performance. Notwithstanding the foregoing, a termination under subsection (v) shall not constitute a termination
for "Cause" unless the Company has first given Lund written notice of the offending conduct (such notice shall include a description of remedial actions that the Company reasonably deems appropriate
to cure such offending conduct) and a thirty (30) day opportunity to cure such offending conduct. In the event the Company terminates Lund's employment under subsection (v), the Company
agrees to participate in binding arbitration, if requested by Lund, to determine whether the cause for termination was willful neglect of duties or poor performance as opposed to some other reason
that does not constitute Cause under this Agreement. 




        4.    General Provisions.    Except as set forth in this Agreement, the terms of the Offer Letter remain unchanged.
Nothing in this Agreement is intended to change the at-will nature of Lund's employment with the Company. This Agreement and the Offer Letter, including the Additional Terms and Conditions
attached thereto and the Proprietary Information and Innovations Agreement signed by Lund, constitute the entire agreement between Lund and the Company with respect to Lund's employment with the
Company, and supersedes and replaces the Original Agreement in its entirety. No amendment or modification of the terms or conditions of this Agreement shall be valid unless in writing and signed by
the parties. 


        5.    Compliance with Section 409A of the Code.    This Agreement is intended to comply with
Section 409A of the Code (or any regulations or rulings thereunder), and shall be construed and interpreted in accordance with such intent. Notwithstanding anything to the contrary in this
Agreement, the Company, in the exercise of its sole discretion and without the consent of Lund, may amend or modify this Agreement in any manner in order to meet the requirements of
Section 409A of the Code as amplified by any Internal Revenue Service or U.S. Treasury Department guidance. Any provision of this Agreement that would cause the payment of any benefit to fail
to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Code Section 409A (which amendment may be retroactive to the extent permitted by the Code
or any regulations or rulings thereunder). Lund is encouraged to consult a tax adviser regarding the potential impact of Section 409A of the Code. 


        6.    Parachute Payment Excise Tax.    



        (a)   In
the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Code) to Lund for Lund's benefit, paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, the Lund's employment with the Company or a Change of Control (a
"Payment" or "Payments"), would be subject to the excise tax imposed by Code Section 4999, or any
interest or penalties are incurred 



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by
Lund with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Lund will be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Lund of all taxes (including any interest or penalties (other than interest and penalties imposed by reason of Lund's failure to file timely a tax return or pay taxes shown due on
Lund's return) imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, Lund retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. 


        (b)   An
initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be
made by the Company. the Company shall provide its determination (the "Determination"), together with detailed
supporting calculations and documentation, to Lund within fifteen (15) days of the date of Lund's termination, if applicable, or such other time as requested by Lund (provided Lund reasonably
believes that any of the Payments may be subject to the Excise Tax). If requested by the Lund, the Company shall furnish Lund, at the Company's expense, with an opinion reasonably acceptable to Lund
from the Company's accounting firm (or an accounting firm of equivalent stature reasonably acceptable to Lund) that there is a reasonable basis for the Determination. Any Gross-Up Payment
determined pursuant to this paragraph 6 shall be paid by the Company to Lund within five (5) days of receipt of the Determination. 


        (c)   As
a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof)
will be paid which should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which should have been paid
will not have been paid (an "Underpayment"). 



        (d)   An
Underpayment shall be deemed to have occurred (A) upon notice (formal or informal) to Lund from any governmental taxing authority that Lund's tax liability
(whether in respect of Lund's current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to
which the Company has failed to make a sufficient Gross-Up Payment, (B) upon a determination by a court, or (C) by reason of determination by the Company (which shall include
the position taken by the Company, together with its consolidated group, on its federal income tax return). If an Underpayment occurs, Lund shall promptly notify the Company and the Company shall
promptly, but in any event at least five (5) days prior to the date on which the applicable government taxing authority has requested payment, pay to Lund an additional Gross-Up
Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of Lund's failure to file timely a tax return or pay taxes shown
due on Lund's return) imposed on the Underpayment. 


        (e)   An
Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or
Payments (or portion thereof) with respect to which Lund had previously received a Gross-Up Payment. A "Final Determination" shall be deemed to have occurred when Lund has received from
the applicable government taxing authority a refund of taxes or other reduction in Lund's tax liability by reason of the Excise Payment and upon either (A) the date a determination is made by,
or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds Lund and such taxing authority, or in the event that a claim is brought before a
court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has
expired or (B) the statute of limitations with respect to Lund's applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall
be repaid by Lund to the Company unless, and only to the extent that, the repayment would either 



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reduce
the amount on which Lund is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999. 


        (f)    Notwithstanding
anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or
Payments, the Company shall pay to the applicable government taxing authorities, as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or
Payments. 



					
	 	 	Deanna H. Lund
	

Dated:	
 	

  








	

 	
 	
Kratos Defense & Security Solutions, Inc.
	

Dated:	
 	

By:	
 	

  











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Exhibit 10.4


AMENDED AND RESTATED SEVERANCE AND CHANGE OF CONTROL AGREEMENT